Pakistan’s bond rally may extend into 2024 contingent on another IMF bailout: report

Investors believe Pakistan’s dollar bonds will rally for a second year as the government is expected to secure another bailout from the International Monetary Fund (IMF), reported Bloomberg on Wednesday.

UBS Asset Management and William Blair Investment Management see its bonds remaining attractive after almost doubling in 2023, the report said.

Suleman Rafiq Maniya, an independent wealth manager in Karachi, said gains can be as much as 37% in the next 18 months, the report added.

Last year in June, Pakistan managed to clinch a last-minute bailout with the IMF, as the two parties reached an agreement on policies to be supported by a $3-billion, nine-month Stand-By Arrangement (SBA).

An index on Pakistan’s dollar bonds gained 93% in 2023, the best performance in emerging markets after El Salvador

The new IMF arrangement, seen at the time as a massive positive for the government and the economy reeling from crisis, not only extended Pakistan’s commitment with the lender well into the second half of fiscal year 2023-24 but was also an upgrade from the earlier expectation that the country would receive $1.1 billion after the ninth review.

The programme allowed the South Asian country to avert a sovereign default, and catapulted the nation’s bonds to rank among the top performers in the world last year, said the report.

While the gains are expected to moderate, reforms such as raising fuel and electricity prices may open the door for another round of funding, it said.

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“They seem committed to this IMF programme, 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.”

Bloomberg shared that an index on Pakistan’s dollar bonds gained 93% in 2023, the best performance in emerging markets after El Salvador.

The report said that investors are trying to gauge the risks as Pakistan goes for elections a month before the current IMF programme ends in March.

Fulfilling IMF demands 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 programme, which is our base case.”

The market has now set its eyes on the IMF’s Executive Board, which is expected to meet on January 11.