Economic review talks between Pakistan and the IMF are under way and one of the issues Pakistan has brought up is the IMF’s condition capping the amount of sovereign bonds the government can issue.
A sovereign or government bond is basically a guarantee the government gives when taking a loan. But the IMF has capped the amount of sovereign bonds the government can issue at 3.6% of the GDP.
Sovereign bonds are issued to domestic and foreign lenders and in 2013, Pakistan had given Rs626 billion in guarantees — Rs355 billion domestic and Rs271 billion foreign. The foreign currency guarantees kept declining and in March 2019, were at Rs76 billion.
The overall guarantees stood at Rs1.265 trillion in March 2019 and the IMF had projected that the level would reach about Rs1.611 trillion by June. It had said that the level of sovereign bonds cannot exceed that. Now, if the government wants to get loans and give guarantees, it can’t because it has already reached its limit. If it does, it will be breaking the IMF’s rules.
Pakistan signed a $6 billion package with the IMF and because of that, Pakistan has to adhere to a lot of its rules. During the talks on Friday, Pakistan’s finance ministry asked the IMF to either remove the ban or raise the cap.
It wants to issue $2 billion to $3 billion more in sovereign bonds, according to the finance secretary.