EDITORIAL: A press release issued on Wednesday maintained that the government is proud to announce a major milestone in the country’s sustainable finance journey with the launch of the first Green Sukuk of 20 to 30 billion rupees. Two observations are critical.
First, irrespective of the fact that a Sukuk is a pillar of Islamic finance, it is government borrowing and the rate of return will be determined by market conditions. And second, the cited Sukuk amount, from between 20 and 30 billion rupees, indicates that the government is unsure as to how much public interest the offer of this equity will generate. That interest no doubt has been compromised by the ongoing escalatory conflict between India and Pakistan, a fact that is reflected by the Pakistani bonds gyrating.
What is relevant to note is that all three international rating agencies have never rated the country at investment grade and while last month one rating agency, Fitch, improved our rating, yet the improvement was from substantial credit risk to highly speculative defined as default risk is present, but a limited margin of safety remains with capacity for continued payments vulnerable to deterioration in the business and economic environment.
Additionally, neither of the remaining two ratings agencies — Standard and Poor’s and Moody’s — has raised Pakistan’s rating in line with Fitch’s. And subsequent to the Indian attack and the downing of the Indian planes by Pakistan, Moody’s has stated that in case of a further escalation between the two nuclear powers, the price of war maybe too high for Pakistan.
Needless to add, the limited margin can be defined as remaining on an extremely harsh upfront International Monetary Fund programme with any violation of agreed conditions likely to be followed with the cessation of the programme accompanied by the withdrawal of the 16 billion dollar rollovers by the three friendly countries — China, Saudi Arabia and the United Arab Emirates.
It is relevant to note that by far the largest budgeted expenditure has been debt servicing cost, and this cost has been steadily rising due to a rise in reliance on borrowing from external sources as well as domestic sources. In the budget for the current year, mark-up has been projected at 9.775 trillion rupees out of a total outlay of 18.877 trillion rupees.
Last fiscal year the budgeted amount for mark-up was 7.302 trillion rupees, which in the revised estimates was 8.26 trillion rupees — an upward revision of 13 percent. Higher than the budgeted amount for mark-up has been the normal practice in this country as the budgeted expenditure rises and therefore there is the likelihood that this year too the mark-up would be higher than the budgeted amount, especially given the cross border conflict.
Pakistan’s economy remains extremely fragile (indicated by foreign exchange reserves less than the rollovers, remittances shored up by purchase of dollars on the open market by the State Bank of Pakistan — a charge by independent economists that the apex bank has yet to deny, and a large-scale manufacturing sector persistently in the negative realm for the past three years).
The situation would worsen exponentially if Modi’s threat of abrogating the Indus Waters Treaty becomes effective in the medium to long-term, as that would make Pakistan already defined as a water scarce country a highly water-stressed country experiencing drought or floods on India’s whims. In other words, simply by naming it Green Sukuk would not miraculously reverse the negative impact of climate change that Pakistan has been subjected to in recent years.
One would therefore hope that the stakeholders take full cognizance of the situation and take appropriate measures to deal with multiple challenges that face the country today. Granted that it is an extremely challenging task, but the onus of meeting it rests with the stakeholders.
Copyright Business Recorder, 2025