In a bid to meet IMF's requirement of increasing the gross official foreign currency reserves to USD 20 billion, Pakistan is planning to raise USD 1 billion from international debt markets through a Eurobond offering next year.
The proposal to issue USD 1 billion worth of dollar-denominated bonds is part of the USD 9.5 billion in foreign economic assistance projected for the fiscal year ending June 30, 2016, The Express Tribune reported today.
The USD 1-billion amount can be increased further, if privatisation proceeds fall short of next fiscal year's targets, according to the Finance Ministry.
For the next fiscal year, International Monetary Fund (IMF) balance of payments projections show that Pakistan is required to increase its gross official foreign currency reserves to USD 20.2 billion, excluding the commercial banks' reserves.
This would require Pakistan to add an additional USD 5 billion in the reserves held by State Bank of Pakistan (SBP), which seems a monumental task.
For the outgoing fiscal 2015, the IMF has asked Pakistan to increase the reserves to USD 15.4 billion.
As of May 1, the SBP's gross official reserves stood at USD 12.51 billion and the government needs another USD 2.8 billion to hit the annual target.
It is expecting a USD 500-million IMF tranche and USD 1.4 billion from the World Bank and the Asian Development Bank before the end of June.
There is growing criticism about the government's strategy to build the reserves through what many analysts call unsustainable and expensive means.
While addressing a seminar on Wednesday, Privatisation Commission Chairman Mohammad Zubair admitted "it is not an ideal way of building foreign currency reserves".
Finance Minister Ishaq Dar said foreign lenders were giving money because of government's economic policies, pointing out that bond offerings by the predecessor government remained unsuccessful.
The fact remains that the current government after two years in office has been unable to substantially increase foreign direct investment or exports, considered to be the most sustainable ways of building foreign currency reserves.
The proposal to issue Eurobonds shows that the government plans on continuing its policy of tapping the global capital markets to build up its foreign currency reserves.
If the bond offering were to go through, it will be the third such issuance in three years.
