Pakistan to market bonds as economic growth speeds up
“It will be a benchmark transaction,” Ashfaque Hassan Khan, the government's economic adviser, said in an interview. The size of the borrowing hasn't yet been decided, he said.
The government, which expects the economy to expand by as much as 8 percent annually over the next five years, will use the money to build roads, ports, dams, and other infrastructure. The nation's dollar-denominated debt returned 11.8 percent in the past year, the third-best performing in Asia after the Philippines and Indonesia, according to indexes compiled by JPMorgan Chase & Co. “The growth prospect of the country is there,” said Clifford Lau, a Singapore-based portfolio manager at Pramerica Fixed Income who helps manage $7.6 billion of emerging market assets. “Pakistan will benefit from investors' hunger for yield.”
Junior Finance Minister Omar Ayub Khan said in his budget speech in June that the nation plans to sell as much as $500 million of foreign-currency bonds to overseas investors before the end of next month. The government this year hired Citigroup Inc., Deutsche Bank AG, and HSBC Holdings Plc to manage the sale.
The nation's debt equals half the $129 billion economy. ---------------- Narrowing spread
Pakistan raised $800 million in March 2006 selling bonds maturing in 10 and 30 years. The yield on the nation's 7.125 percent bonds due in March 2016 has narrowed to 1.83 percentage points more than U.S. Treasuries of similar maturity, from 2.4 percentage points when they were sold more than a year ago.
The country's debt ratings were raised one level to B1, four levels below investment grade, by Moody's Investors Service in November, helping reduce the government's borrowing costs as it signals lower risk of a default.
Government officials will meet investors in Singapore, Hong Kong, Dubai, Bahrain, London, and the U.S. this month, Khan said in an interview in Kyoto, where he attended the Asian Development Bank's annual meeting which ended Monday.
Pakistan may need to offer additional yield to compensate investors for the nation's political and security risks, Pramerica's Lau said. -------------------------- Bombings
Interior Minister Aftab Sherpao was among 52 people injured in a suicide bombing that killed 28 people in April. Assassination attempts on President Pervez Musharraf and Prime Minister Shaukat Aziz also highlight Pakistan's security risks, S&P said in February. “Pakistan is located in a troubled region and headlines of political conflicts there bother investors,” Lau said. “Investors buying the bonds have to weigh in the risk.”
Pakistan's stocks dropped 3.5 percent Monday, the most in eight months, after Aziz said the constitution gives the government the right to declare a state of emergency to quell protests against the removal of the nation's top judge.
Chief Justice Iftikhar Muhammed Chaudhry's removal by Musharraf on March 9 sparked nationwide protests by lawyers and opposition members that grew into anti-government rallies over the president's continued rule in Pakistan. Chaudhry was scheduled to hear a case to determine whether Musharraf can legally run for election for a second term, Pakistan's Dawn daily newspaper reported March 12. --------------------- Eliminating poverty
Pakistan's stock index climbed to a record on May 4, closing at 12,512.08. Overseas investment in Pakistani equity stood at $720 million as of May 2, according to the data posted on the website of the country's central bank.
Aziz is targeting annual economic growth of as much as eight percent for the next five years, up from 6.6 percent in the latest fiscal year. The government aims to eliminate poverty by 2015 in a country where about a quarter of the 160 million people now live on less than $1 a day.
Pakistan plans to reduce its budget deficit to 3.3 percent of gross domestic product by 2011, from a forecast 4.2 percent in the year ending June 30. Government revenue is estimated at 14.7 percent of gross domestic product in the current fiscal year, according to Standard & Poor's.