Hopes that Pakistan could return to the bond markets on the back of the country's brightening economic prospects were raised this week as the IMF heaped praise on the country's economic programme - welcome news for investment bankers expecting the Islamic Republic to tap debt markets in late November.
According to the IMF's World Economic Report, the country's improved economic performance has reduced "external vulnerabilities and provided some room to address long-standing fiscal adjustment and development issues."
IMF economists remain concerned, however, over the country's high levels of public debt - despite massive rescheduling agreements by countries such as the US. The IMF has said that it is "critical that the increased development spending planned for the current fiscal year be offset by other measures."
Pakistan is currently picking investment banks to lead manage an Islamic Sukuk bond deal, the size, tenor and pricing of which have yet to be confirmed. Ashfaque Khan, director general of Pakistan's debt office and advisor to the finance ministry, could not give further details but said Prime Minister Shaukat Aziz's approval of the mandate is expected soon. Government officials are likely to decide the size of the deal once bankers have established the level of interest in the market.
In Islamabad earlier this week, several banks made presentations to pitch for the mandate. Khan said: "The last presentation was held [Thursday] and we are preparing a list of all the banks' strengths and weaknesses to take to the prime minister." Standard Chartered Bank, ABN Amro, Citibank and JP Morgan have all expressed an interest in arranging the deal. Pakistan's $500 million Eurobond launched in February received an overwhelmingly positive response from institutional investors and was lead managed by ABN Amro, Deutsche Bank and JP Morgan.
Access to international capital markets radically improved after Pakistan reached significant debt restructuring agreements with its public creditors. Earlier this week President Pervez Musharraf said that the Paris Club agreement to reschedule Pakistan's $12.5 billion of foreign debt has had a positive snowball effect on the economy. The country's biggest bilateral creditors are France, Germany, Korea and the US.
Last year the US government cancelled $1 billion of Pakistan's debt, and a further $495 million in July this year. The US is also putting in place a $3 billion aid package, announced by President George Bush when Musharraf visited Washington last year. It has linked the phased distribution of the aid package, 50% of which is for development and 50% for defence, with progress on peace in the subcontinent. The US Senate approved a further $700 million disbursement in late September.