Pakistan launches $1billion Ijara Sukuk in global market

[Norwegian]

Sri lanka lost its port when it could not pay back its loan.
Why do you think something similar wont happen to Pakistan if it cannot pay back?

Creditors can't take away motorways in case of default. Worst thing that can happen is creditors taking over toll revenue from motorways after default. So no big deal

 

[pc_alt]

Creditors can't take away motorways in case of default. Worst thing that can happen is creditors taking over toll revenue from motorways after default. So no big deal

It is one and the same thing. Tomorrow, if the taxes you pay go to external creditors instead of your govt, then essentially the country is sold to external creditors.

 

[Norwegian]

It is one and the same thing. Tomorrow, if the taxes you pay go to external creditors instead of your govt, then essentially the country is sold to external creditors.

Yes, the risk is there. But if that happens it's all own govt stupidity

 

[pc_alt]

Yes, the risk is there. But if that happens it's all own govt stupidity

I think the point here is that a sovereign nation giving collateral on a bond seems unprecedented. It shows the lack of confidence which creditors have in giving loan despite being offered a juicy interest rate of 7.95%

Also, does it mean we will see more collateral backed loans for Pakistan in future. What else can go as collateral in coming days?

 

[Norwegian]

I think the point here is that a sovereign nation giving collateral on a bond seems unprecedented. It shows the lack of confidence which creditors have in giving loan despite being offered a juicy interest rate of 7.95%

Beggars can't be choosers. Past govts took unprecedented debts in dollars without thinking country's ability to return these loans in future. Country is officially in a debt trap

 

[pc_alt]

Beggars can't be choosers. Past govts took unprecedented debts in dollars without thinking country's ability to return these loans in future. Country is officially in a debt trap

So if you acknowledge this, what do you suggest Pakistan should do to come out of it.

As far as I see and many sensible Pakistanis agree, Pakistan cannot afford an arms race and military standoff situation with its neighbors.

Should it not open trade with India? This will lead to huge savings for Pakistan as it has to import same items from much further away increasing the import bill. Also, increased trade will reduce military tensions thus cooling off the arms race and reducing the need to buy many weapons.

 

[Norwegian]

So if you acknowledge this, what do you suggest Pakistan should do to come out of it.

Try to increase foreign direct investment, remittances and exports. There is no easy way out

As far as I see and many sensible Pakistanis agree, Pakistan cannot afford an arms race and military standoff situation with its neighbors.

Should it not open trade with India? This will lead to huge savings for Pakistan as it has to import same items from much further away increasing the import bill. Also, increased trade will reduce military tensions thus cooling off the arms race and reducing the need to buy many weapons

Pakistan's problem is external debt not internal debt so slashing military budget won't have any affect on the problem

 

[Wood]

I think the point here is that a sovereign nation giving collateral on a bond seems unprecedented. It shows the lack of confidence which creditors have in giving loan despite being offered a juicy interest rate of 7.95%

Feds are set to raise the interest rate in US. All developing economies have to price that into their interest rate. So you can expect India to also increase rates to keep pace.

As far as I see and many sensible Pakistanis agree, Pakistan cannot afford an arms race and military standoff situation with its neighbors.

Should it not open trade with India? This will lead to huge savings for Pakistan as it has to import same items from much further away increasing the import bill. Also, increased trade will reduce military tensions thus cooling off the arms race and reducing the need to buy many weapons.

Indian posters always come down to this point - that trade with India is the panacea for Pakistan's economic woes.

While I'm sure that trade will be beneficial, I doubt it will be sufficient to resolve Pakistan's debt problem.

 

[Genghis khan1]

I guess good for investors. Let me do some research and invest. Although it’s says Islamic but pays interest. Is it really halal?

 

[Wood]

I guess good for investors. Let me do some research and invest. Although it’s says Islamic but pays interest. Is it really halal?

The underlying assets for this debt instrument should be halal.

 

[Norwegian]

Indian posters always come down to this point - that trade with India is the panacea for Pakistan's economic woes.

While I'm sure that trade will be beneficial, I doubt it will be sufficient to resolve Pakistan's debt problem.

How? Will India and Pakistan trade with local currencies or dollars? If dollars then how will Pakistan benefit from it?

 

[Wood]

How? Will India and Pakistan trade with local currencies or dollars? If dollars then how will Pakistan benefit from it?

Pakistan has a free trade with China. But despite it, Pakistani industries have not been able to make significant exports to China because of relative inefficiencies in Pakistan's logistics.

India suffers from the same type of inefficiencies as Pakistan. So with India, Pakistan will be able to export even without any special treaties as long as there are no non-tariff barriers. The lower currency value of Pakistan should give Pakistani exports and edge over Indian goods. This will improve your exports and shore up reserves. But it will not be sufficient to solve your debt problems.

 

[pc_alt]

Try to increase foreign direct investment, remittances and exports. There is no easy way out


Pakistan's problem is external debt not internal debt so slashing military budget won't have any affect on the problem

Military purchases are done via cash from internal tax collection or cash from external debt. In Pakistan's case, a bulk of the purchases are via external debt.

Feds are set to raise the interest rate in US. All developing economies have to price that into their interest rate. So you can expect India to also increase rates to keep pace.


Indian posters always come down to this point - that trade with India is the panacea for Pakistan's economic woes.

While I'm sure that trade will be beneficial, I doubt it will be sufficient to resolve Pakistan's debt problem.

So if the rate is high to Fed rate hike, is the 7.95% rate a floating rate which may come down later if lets say Fed reduces the rate after 2 years?

I did not say that trade with India will also all its problems. It will only be one factor in solving the problem. Pakistan will need to do a lot more to possibly solve it completely.

How? Will India and Pakistan trade with local currencies or dollars? If dollars then how will Pakistan benefit from it?

Let suppose Pakistan needs item A which is available from India at 10 dollars and also from UAE at 15 dollars. Since Pakistan is not trading with India, it pays $15 for it today. If it trades with India, Pakistan will save 5 dollars thus reducing the load on its forex.

 

[Jungibaaz]

Yes, nobody is losing motorways in case of default on loans

If it's collateral, it'll be exacted in case of default. Investors and international bond markets don't take this sort of stuff lightly. More than likely the legal documentation of this bond offering include obligations on collateral.

Re the 7.95% thing. I'll do a quick analysis at work tomorrow to see where Pakistan Int'l bond fair value lies at the 7-year tenor. Let's see if this was very expensive or not. We might also be able to see what the NIP was on this offering.

 

[Wood]

So if the rate is high to Fed rate hike, is the 7.95% rate a floating rate which may come down later if lets say Fed reduces the rate after 2 years?

I did not say that trade with India will also all its problems. It will only be one factor in solving the problem. Pakistan will need to do a lot more to possibly solve it completely.

One cannot easily speculate that far into the future. You've assumed that rates will go down in future, they could just as well go up. Pakistan is trying to raise money for the immediate problem, so it will try to make sure that the rates are in line with the expected trend.