Pakistan Sizzling Bond Rally May Extend Into 2024 On IMF Hopes
An index on Pakistan’s dollar bonds gained 93% in 2023, the best performance in emerging markets after El Salvador.
(Bloomberg) -- Pakistan’s dollar bonds will rally for a second year as the government is expected to secure another bailout from the International Monetary Fund, according to investors.
UBS Asset Management and William Blair Investment Management see its bonds remaining attractive after almost doubling in 2023. Suleman Rafiq Maniya, an independent wealth manager in Karachi, says gains can be as much as 37% in the next 18 months.
Pakistan succeeded in averting a sovereign default after securing a $3 billion bailout from the IMF in July. The move catapulted the nation’s bonds to rank among the top performers in the world last year. While the gains are expected to moderate, reforms such as raising fuel and electricity prices may open the door for another round of funding.
“They seem committed to this IMF program, and that is a significant point because it suggests there is a big likelihood for them to get another bailout,” said Johnny Chen, fund manager at William Blair in Singapore. “There is also strong potential for reforms to pick up momentum after the elections.”
Read: Pakistan Holds Rates at Record Ahead of IMF Board Approval
An index on Pakistan’s dollar bonds gained 93% in 2023, the best performance in emerging markets after El Salvador. Pakistan may seek a fresh loan from the Washington-based lender to nurse its fragile economy, interim finance minister Shamshad Akhtar said in November.
Investors are trying to gauge the risks as Pakistan goes for elections a month before the current IMF program ends in March. Its dollar bonds extended gains after a local court in December scrapped former prime minister Nawaz Sharif’s graft sentence, removing a major hurdle in his participation in polls where he is widely seen as a top contender.
Fulfilling IMF demands has helped Pakistan secure financing from friendly countries as well as other multilateral lenders, because of which, the “risk of default in 2024 has gone down significantly,” said Shamaila Khan, head of emerging markets and Asia Pacific at UBS Asset Management in New York. “Everything is predicated on the country sticking to the IMF program, which is our base case.”
--With assistance from Faseeh Mangi.
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