WASHINGTON: 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), according to investors.
UBS Asset Management and William Blair Investment Management project continued attractiveness in the bonds, which nearly doubled in value in 2023. Suleman Rafiq Maniya, an independent wealth manager in Karachi, suggests potential gains of up to 37% over the next 18 months.
Following a successful $3 billion bailout from the IMF in July, Pakistan managed to avert a sovereign default, elevating its bonds to top-performing status globally. Although the pace of gains is expected to slow, potential reforms, such as adjustments to fuel and electricity prices, could pave the way for additional funding.
Investors are optimistic about Pakistan’s commitment to the IMF program, signalling a high likelihood of securing another bailout, according to Johnny Chen, a fund manager at William Blair in Singapore. The upcoming elections are seen as a potential catalyst for reforms, and the index on Pakistan’s dollar bonds registered a remarkable 93% gain in 2023, second only to El Salvador in emerging markets.
As Pakistan heads towards elections a month before the conclusion of the current IMF program in March, investors are monitoring associated risks. The extension of gains in dollar bonds followed a local court’s decision in December to annul the graft sentence of former Prime Minister Nawaz Sharif, removing a significant obstacle to his participation in the polls.
By adhering to IMF demands, Pakistan has not only secured financing from friendly nations and other multilateral lenders but has also substantially reduced the risk of default in 2024, said Shamaila Khan, head of emerging markets and Asia Pacific at UBS Asset Management in New York. The overall outlook hinges on the country’s continued commitment to the IMF program, forming the basis of investors.
