Pakistan’s sovereign dollar-denominated bonds jumped Monday after its parliament approved a revised budget in a last-ditch bid to clinch a deal with the International Monetary Fund (IMF).
Shorter-dated securities saw the most significant gains, with the 2024 bond adding more than 3 cents before retracing some of the improvements, Tradeweb data showed. However, they are still at deeply distressed levels of just under 53 cents.
There are four days before a $6.5 billion Extended Fund Facility (EFF), agreed in 2019, expires on June 30. The IMF has to review whether to release a $1.1 billion tranche pending to Pakistan that has been stalled since November.
Saturday’s budget review came a day after Prime Minister Shehbaz Sharif met IMF Managing Director Kristalina Georgieva on the sidelines of the Global Financing Summit in Paris.
The IMF clarified that it was unhappy with the budget Pakistan presented earlier in the month, saying it failed to broaden the tax base progressively and undercut resources needed for vulnerable people.
The funding is critical to Pakistan as it faces an acute balance of payment crisis, which analysts say could spiral into a debt default if the IMF funds do not come through.
The central bank barely has enough foreign exchange reserves to cover one month of even controlled imports, its currency has lost more than 25% against the US dollar since the beginning of the year, and the economic meltdown is driving more of its citizens to try risky migration routes to Europe.
