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Pakistan’s bonds rise to highest level in over a year as IMF tranche nears

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6 months ago

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  • Rise in bonds based on reports of political stability after polls.
  • 2036 dollar-denominated bond gains 2.4 cents. 
  • 2025 maturity lifts to strongest level since May 22. 

KARACHI: Pakistan bonds rose to their highest level in 15 months in hopes that more international financial support is on the way after the country secures the International Monetary Fund’s (IMF) tranche, The News reported Tuesday. 

Optimism about the country’s economy after the tranche has doubled the bonds as they were in late May as the country continues to be gripped by the debt crisis. 

The 2036 dollar-denominated bond rallied the most, gaining 2.4 cents to trade at 57.76 cents on the dollar. The 2025 maturity gained just under 2 cents, lifting it to 82.37 cents on the dollar, its strongest level since May 2022.

The latest leg of the rally, which began last month, was sparked by hopes that an election scheduled for February will provide political stability and enable some economic certainty. An agreement last week to unlock $700 million of IMF funding has also buoyed the country’s bonds.

Meanwhile, the lost some of its trade competitiveness in October as it appreciated against a basket of major trading partners’ currencies, data from the central bank showed. 

The Real Effective Exchange Rate (REER) index, which measures the value of the rupee against a weighted average of several foreign currencies, rose to 98.6 in October from 91.7 in September, according to the State Bank of Pakistan (SBP).

A REER below 100 indicates that the country’s exports are cheaper and imports are more expensive, giving it an edge in international trade. A higher REER means the opposite. The REER increased 7.51% month-on-month in October but declined 2.9% year-on-year when it stood at 101.57.

The Nominal Effective Exchange Rate (NEER) index, which measures the value of the rupee against the same basket of currencies without adjusting for inflation, also increased 6.5% month-on-month in October to 39.18 from 36.79 in September. The NEER fell 21.46% year-on-year from 49.89 in October 2022.

The REER and NEER are calculated using the trade weights of 37 countries, which account for 90% of Pakistan’s trade flows. The rupee continued to rise against the dollar on Monday due to exporters’ dollar sales and optimism about the country’s economy following Pakistan’s deal with the global lender for the next loan tranche.

In the interbank market, the rupee closed at 285.97 to the dollar, compared with the previous close of 286.50. The local unit increased by 0.19% against the dollar during the session. The local currency gained 75 versus the greenback in the open market. 

According to rates released by the Exchange Companies Association of Pakistan (ECAP), the rupee was trading at 287.50 for selling, compared with 288.25 on Friday.

“Despite the drop in forward premiums, exporters are returning to the market to sell dollars, hoping that the rupee will strengthen further in the coming days,” said a currency dealer. The rupee is supported by better supply and an improved economic outlook, the dealer added.

The currency market prediction is that the rupee will rise to approximately 282 per dollar, at which point the SBP will recommence purchasing dollars. The rupee will remain strong due to positive news flows such as multilateral funding and IMF executive board approvals, according to a dealer.

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Pakistan’s gold prices are still declining; see the most recent

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5 days ago

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The price of 10-gram gold reduced by Rs943 to settle at Rs207,733, while the price of gold dropped by Rs1200 to close at Rs242,300 a tola, according to the Sindh Sarafa Jewellers Association.

In the global market, the price of the precious metal fell by $10 to $2,349 per ounce, resulting in losses.

At 04:48 GMT, the spot price of gold had dropped by 0.2% to $2,354.77 per ounce. In the previous session, prices reached a two-week high.

American gold futures dropped 0.6% to $2,361.

Spot silver decreased by 0.4% to $28.03 per ounce, while palladium remained steady at $978.03 and platinum decreased by 0.1% to $992.89.

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Pakistan and the IMF begin talks for a new loan.

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5 days ago

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Pakistan is requesting a $6 to $8 billion bailout package from the international lender over the next three to four years to address its financial troubles.

A mission team led by Nathan Porter, the IMF’s Mission Chief in Pakistan, is meeting with a Pakistani delegation led by Finance Minister Muhammad Aurangzeb.

According to sources familiar with the situation, Islamabad may face more difficult options, such as raising power and gas bills.

Mr. Aurganzeb informed the IMF team that the country’s economy has improved as a result of the IMF loan package, and Islamabad is ready to sign a new loan programme to further develop.

The IMF mission expressed satisfaction with Islamabad’s efforts to revive the country’s struggling economy.

The IMF praised Pakistan’s economic growth in its staff report earlier this week, but warned that the outlook remains challenging, with very high downside risks.

The country nearly avoided collapse last summer, and its $350 billion economy has stabilized since the end of the last IMF program, with inflation falling to roughly 17% in April from a record high of 38% last May.

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Petrol prices are likely to drop significantly beginning May 16.

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5 days ago

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According to sources, the government is set to decrease petrol prices by Rs 14 per litre and diesel prices by Rs 10 on May 16 for the next fortnight’s revision.

Last month, the government reduced the price of fuel and high-speed diesel by Rs5.45 and Rs8.42 per fortnight, respectively.

The current fuel price is Rs288.49 per litre, while the HSD price is Rs281.96.

Meanwhile, oil prices fell further on Monday, as signs of sluggish fuel consumption and comments from U.S. Federal Reserve officials dimmed optimism for interest rate reduction, which may slow growth and reduce fuel demand in the world’s largest economy.

Brent crude prices down 25 cents, or 0.3%, to $82.54 a barrel, while US West Texas Intermediate crude futures fell 19 cents, or 0.2%, to $78.07 per barrel.

Oil prices also declined on signals of poor demand, according to ANZ analysts, as gasoline and distillate inventories in the United States increased in the week before the start of the driving season.

Refiners throughout the world are dealing with falling diesel profitability as new refineries increase supply and warm weather in the northern hemisphere and weak economic activity reduce demand.

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