World has moved on but #PakEcon discourse is stuck in a rut. Would be easy to ignore such superficial narratives but they’ve historically fed into policy/political discourse (PTI did this aggressively pre-18) & fuelled ‘anti corruption’ which-hunts hence worth challenging 1/N https://twitter.com/81shaz/status/1266231253889515522

@alirashidsiddiq who knows this space well gave his personal views on this earlier.

I’ll give my personal views and try elaborate on this further.

2/N https://twitter.com/alirashidsiddiq/status/1266305186923831297

@81shaz’s article makes some flimsy assertions:
a) Portfolio flows into PKR denominated govt debt (“hot money”) and hard currency denominated govt debt (“eurobonds”) are mutually exclusive - i.e. you can only engage one or the other at any given time.

This is not true..

3/N

Most large institutional investors have seperate funds (seggregated pool of money), risk appetite & mandates for each asset class.

This means in most cases the same $ is not chasing both PKR debt & eurobonds, as dynamics are v.different - so not mutually exclusive 4/N

For eurobonds, MoF has to go on roadshows with banks across global financial capitals to court investors.

These instruments are priced on top of US$ treasuries, contracts are governed by foreign law & usually have 5yrs+ maturities. Hence initial process is longer/cumbersome
5/N

On the other hand, simply put, portfolio flows into PKR debt is just foreigners buying bonds from the domestic market under PK law.

Risks associated are v.different (legal,FX etc) & likely why international investors were initially testing waters with 1-6 month maturities 6/N

However as per @81shaz’s source there was fear of ‘cannibalisation’ so so let’s just take this at facevalue & assume I’m wrong..there are still other dubious assertions 7/N

Another assertion:
b) delay in eurobond issuance was driven solely because of “hot money”

While increasing ptf flows may have given balance of payments breathing space but this was NOT the reason for delay.

Eurobonds have a cumbersone process, its key to get it right..8/N

Unlike t-bills, eurobond interest payment stick for longer (5yrs+) & have to be paid in foreign currency which PK cannot print. So it’s critical to get lowest possible cost. Looking back, PK’s issuance window would have been b/w Aug’19-Feb’20 - after signing into IMF program. 9/N

If MoF asked any debt mkts advisor in Aug (which I’m sure they did) they would have advised to:
1) Initiate IMF reform process to improve investor story
2) Keep an eye on US Fed interest rate (this impacts US$ treasuries) which was then rumoured to be reduced in the future 10/N

Come Nov’19, investors did really warm up to the PK story (Bloomberg/FT etc also reporting) & the US fed had started reduing interest rates. Both of these were positives!

However advisor now should’ve told MoF that US-China trade tensions are causing turbulence in markets 11/N

Also emerging market hard currency debt has had a record year so far & lots of money has already been deployed which means many funds have already met targets for the year. Moreover, roadshow process would take some weeks which would coincide with Christmas holiday season. 12/N https://twitter.com/alirashidsiddiq/status/1247111864087126016

All three are negatives for the issuer, so why not delay until 2020?

By end-Feb’20, covid-19 had devestated markets which obviously made it difficult for a weaker economy like Pak to issue eurobonds at a desirable cost. 13/N

So in hindsight only feasible window was Jan’20 where PK could have potentially gone to market with eurobond.
However back then MoF didn’t have immediate funding need & would have benefited from waiting for improved current account deficit numbers to get a better deal 14/N

So as they say hindsight is 20/20 - easy to know the right thing to do after something has already happened but hard to predict the future back then.

So one can rationalise delay in eurobond issuance without any ulterior motive or twisted tale of corruption..15/N

Obviously what goes around, comes back around & its rational for politicians to push such a narrative. However better is expected of journalist & economists.

Especially since such malicious campaigns stop bureaucrats/politicians from taking difficult/unconventional steps.

16/16