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According to a report by Bloomberg on Wednesday, investors are anticipating a second consecutive year of growth for Pakistan dollar bonds, driven by expectations of the government securing another bailout from the International Monetary Fund (IMF).
UBS Asset Management and William Blair Investment Management note that despite the bonds nearly doubling in value last year, they remain attractive to investors who perceive Pakistan as a high-yield emerging market with a stable currency and an improving economic outlook.
An independent wealth manager in Karachi, Suleman Rafiq Maniya, predicts potential gains of up to 37% for the bonds in the next 18 months.
In July 2023, Pakistan signed a $3 billion standby arrangement (SBA) with the IMF, preventing a sovereign default and acting as a catalyst for the country’s dollar bonds to rank among the world’s top performers in the past year. While gains are expected to moderate, potential reforms, including increases in fuel and electricity prices, could pave the way for another loan.
Johnny Chen, a fund manager at William Blair in Singapore, notes the government’s commitment to the IMF program, suggesting a high likelihood of securing another bailout. He also highlights the potential for reforms gaining momentum post-elections.
A Bloomberg report states that an index tracking Pakistan dollar bonds surged by 93% in 2023, marking the best performance in emerging markets after El Salvador.
In November of the previous year, interim finance minister Shamshad Akhtar mentioned the possibility of Pakistan seeking a fresh loan from the IMF to support its fragile economy.
As Pakistan approaches elections a month before the current IMF program concludes in March, investors are assessing the associated risks. Meeting IMF stipulations not only helped secure funds from friendly nations but also garnered support from other multilateral lenders.
Shamaila Khan, head of emerging markets and Asia Pacific at UBS Asset Management in New York, emphasizes the significant reduction in default risk in 2024 due to Pakistan’s compliance with the IMF program. She underscores the importance of the country’s adherence to these guidelines as the fundamental consideration for investors.