Raising loans from world capital markets: MoF given one-time umbrella permission

ISLAMABAD: The Federal Cabinet has reportedly granted one-time umbrella permission to the Finance Ministry to raise commercial loans from international capital markets through Eurobonds and Sukuks under “Global Medium-Term Note (GMTN) Programmes” despite the fact that the Minister for Law and Justice termed “umbrella approval” as legally untenable, well-informed sources told Business Recorder.

The Finance Ministry apprised the Cabinet that the Government of Pakistan raised funds through various external resources including via issuance of Eurobonds and International Sukuk in the international capital market to support budgetary and balance of payments position. These international issuances had great significance for Pakistan as this allowed access to foreign resources for building the country’s reserves, thereby paving way for exchange rate stability.

Finance Ministry maintained that traditionally international capital market transactions were carried out on standalone basis.

The preparation and execution of standalone capital market transaction took around three to four months as services of several agents like Financial Advisors, local and international legal counsels, paying and listing agents had to be obtained following the Public Procurement Rules, 2004. Quite often, time taken in initiating and concluding a transaction resulted in missing out on favourable capital market conditions.

Keeping in view the limitations of the standalone transactions, a first-ever “Global Medium-Term Note (GMTN) Program” was established in March 2021 with the approval of Federal Cabinet for a period of one year.

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The GMTN program enabled Pakistan to tap the market at short notice and government had raised $ 2.5 billion in April 2021 and $ 1.0 billion in July 2021 through the same program. Similarly, a Trust Certificate Issuance (TCI) program for International Sukuks was established in January 2022 and the government raised $ 1.0 billion.

According to Finance Ministry, the Federal Government’s approval was obtained initially for a period of one year for establishment of these programs, but since Eurobond GMTN program was going to expire in March in 2022 and the International Sukuk TCI program in January 2023, there was a need for perpetual extension to tap the international capital market in a timely manner for its financing needs.

Approval of the Federal Cabinet was solicited under Rule 16(1) (d) of the Rules of Business, 1973 to allow the Finance Division to: (i) renew/ extend the tenor of the GMTN programs (whenever required); (ii) establish any new program and raise funds therein; and (iii) issue Eurobonds, Sukuks or any other international bond from time to time under GMTN programs.

During discussion, the difference in the interest rates of commercial loans vis-à-vis bilateral/ multilateral loans was enquired. It was clarified that it would not be an apt comparison since the terms were different and the commercial loans did not have any conditionalities.

The Minister for Law and Justice, Dr. Farogh Naseem, pointed out that giving umbrella approval for raising commercial loans would not be legally tenable as power of the Federal Government could not be delegated.

Secretary Finance explained that due to short window available in the capital market transactions for taking decisions, it was not possible to obtain prior approvals of the Cabinet every time. These cases would; however, be submitted to the Cabinet for ex-post facto approval.

After detailed discussion, the Cabinet approved the proposal for one time to the extent to: (i) renew/ extend, the tenor of the GMTN programs; and (ii) issue Eurobonds, Sukuks or any other international bond under the GMTN programs.

Copyright Business Recorder, 2022