Bond revival

Pakistan has raised $3 billion in its largest-ever international capital-market transaction, after investors placed nearly $6 billion in orders for the country’s dual-tranche Eurobond sale. The demand amounts to almost twice the money Islamabad sought, with buyers agreeing to lend for 5.5 and 10 years.

That willingness signals confidence that Pakistan will remain solvent, continue servicing its debt and remain worth holding over the next decade. It also gives fresh support to the government’s account of an economic revival, coming two years after the country stood close to default.

The immediate practical gains are clear. The sale should boost foreign-exchange reserves, establish a new pricing benchmark and reduce Pakistan’s dependence on bilateral rollovers. By securing longer-term financing, it also delays the point at which the debt must be refinanced, compared with the shorter rollovers that have dominated external financing in recent years.

The deal, however, is not cheap money. The coupon rates are close to the returns Pakistan pays on Roshan Digital deposits, and they represent high hard-currency costs for a country that cannot print dollars and is struggling to earn them. Pakistan’s previous comparable dollar issue, in 2021, carried rates of 5.875% for five-year bonds and 7.375% for 10-year bonds. The new borrowing therefore costs more.

Some of the difference reflects global conditions, as dollar rates have remained higher for longer after the Federal Reserve’s tightening cycle. Pakistan-specific risk also remains. Investors still charge a premium that an investment-grade borrower would not face. The pricing places Pakistan toward the expensive end among countries with similar credit standing: no longer treated as a basket case, but still below investment grade. The decisive test will come when Pakistan next seeks market financing. Lower borrowing costs in a year or two would show that the confidence behind this issue has lasted.