On Monday, the yield on Pakistan’s US dollar-denominated bond surged by 73 basis points to 106.37% in the international market. This substantial increase indicates an elevated risk of default on foreign debt repayment for the country.
The surge in bond yields reflects the return of volatility in Pakistan’s global bond market, as uncertainties surround the revival of the International Monetary Fund (IMF)’s $6.7 billion loan program and the country’s ability to meet international payment obligations beyond June 2023.
Over the past five months, the yield on the 10-year Pakistan Government International Bond, which matures on April 15, 2024, has seen a cumulative increase of 30.60 percentage points.
Additionally, yields on six other Pakistani global bonds, maturing at different times until April 2051, have also experienced surges ranging from 10 to 39 basis points. One bond, maturing in January 2029, saw a recovery of six basis points.
Prior to the COVID-19 outbreak in Pakistan in February 2020, bond yields were around 8%-10%.
Despite Finance Minister Ishaq Dar’s assurance last week that Pakistan had made arrangements to repay foreign debt worth $3.7 billion until the end of June 2023, concerns persist. Moody’s Investors Service raised an alarm, stating that Pakistan could default without the IMF loan program after June 2023 due to its weak reserves.
The surge in bond yields is attributed to the uncertainty surrounding the IMF program and the tight liquidity position in the international market, according to Samiullah Tariq, Head of Research at Pak-Kuwait Investment Company (PKIC).
The rise in interest rates on bank financing in the US, Europe, and other regions has reduced liquidity supply and affected bond yields in emerging markets, including Pakistan.
While the yield on Pakistan’s $1 billion bond maturing in April 2024 recently reached an all-time high of approximately 110-115%, it has since decreased due to improved US dollar inflows.