The 10-year bond was floated in 2006 by then Prime Minister Shaukat Aziz. It is maturing on March 31 and, hence, due for payment. It carried an interest rate of 7.125 per cent.
The authorisation by the finance minister came following his back-to-back meetings with the governor of State Bank of Pakistan (SBP) and the secretary of Economic Affairs Division (EAD) over the weekend.
The authorisation would enable the EAD to instruct the central bank to clear payments to bond holders on the due date.
An official announcement said that the finance minister had issued directives to the EAD to “ensure timely repayment for retiring” the bond and pass necessary instruction to the SBP in this regard. The “retiring of the Eurobond liability will also result in the reduction in the country’s external debt stock by $500 million”.
An official of the Ministry of Finance said that the payment would not reduce the country’s foreign exchange reserves for more than a few days because of an upcoming disbursement of about $503m by the International Monetary Fund.
However, the government will have to raise about $3.5 billion from the international capital market, mostly by issuing dollar-denominated Eurobonds in almost three years to honour international repayment obligations, according to medium term (2016-19) debt management strategy (MTDMS) of the ministry.
Under the strategy, the government has to raise $1bn during current fiscal year, followed by $500m each in 2016-17 and 2017-18 and then issue another $2bn bonds in 2018-19 to replace maturing bonds.
Another official said that the government was currently in the process of examining the launch of a $500m bond by June this year to ensure that the reserves maintained a rising trend. But, he added, the government was flexible enough under the MTDMS to decide about the timing and size of each floating.
The government has so far attracted about $3.5bn in international bonds since coming to power in May, 2013. These bonds included $1bn Islamic Sukuk and $1.5bn of conventional bonds and $500m in September last year.
After the upcoming repayment, another $750m Eurobond floated by the Musharraf government in 2007 for 10 years at a mark-up of 6.75 per cent is due to mature next financial year.
Over the medium-term (2016-19), foreign inflows are estimated to be more than repayments in the debt management strategy. It put the annual inflows at an average of about $6.5bn a year against $4bn worth of external repayments.