Under President Musharraf and Prime Minister Shaukat Aziz Pakistan has achieved remarkable turnaround in its economic and fiscal situation. This was reported by Adam Harper of the Asian Review who interviewed Dr Ashfaq Hassan Khan Director General Pakistan's Debt Office and Economic Advisor to the Finance Ministry. The title of the story was "Islamic republic looks forward to Sukuk Bond and Pakistan's reputation gains momentum". The Asian Review also carries a picture of Prime Minister Shaukat Aziz.
"There is a fully functioning democracy in this country", said Khan, when asked to comment on President Pervez Musharraf keeping the office of head of state and chief of the Pakistan army. "If you believe in democracy, it is the rule of majority. The National Assembly has approved a bill that allows President Musharraf to hold the two positions simultaneously," Khan said and added, "If parliament approves, we all should accept it."
Under President Musharraf and finance minister turned Prime Minister Shaukat Aziz, Pakistan has achieved a remarkable turnaround in its economic and fiscal situation - a turnaround that enabled it to sell one of the Asian market's outstanding sovereign bonds in February, its first offshore deal for seven years, the Asian Review of the year said.
It added that Pakistan is also preparing a debut global Sukuk, which looks set to enjoy an equally enthusiastic reception from international investors. Citigroup and HSBC have the mandate.
Apart from being experienced arrangers of Islamic issues, they are present in Pakistan - a must if a bank wants to arrange a deal for the country, Khan said.
Khan reeled off an impressive series of economic statistics as evidence of Pakistan's improving economic and fiscal health.
At the end of the fiscal year on June 30, 2004 Pakistan recorded real growth in Gross Domestic Product (GDP) of 6.4 percent - the fastest rate for 10 years and up from just 1.8 percent in 2000-2001.
He added that industrial production grew at a staggering 18 percent, the services sector at five percent. Pakistan's fiscal deficit at the end of fiscal 2003-2004 was 2.4 percent.
Five years ago, he said, Pakistan's external debt was more than 50 percent of its GDP. That has shrunk to 35.3 percent. Tax receipts are rising, exports are increasing, and credit to the private sector has shot up from Rs 168 billion to Rs 302.1 billion in a fiscal year.
As if to confirm the positive reputation of Pakistan's economic management abroad, both ratings agencies upgraded the country in November, taking its foreign currency rating from B3/B to B2B+.
Investors' belief in the continuity of this process was enough to generate an order book of more than two billion dollars for Pakistan's 500 million dollars five year Eurobond in February.
The bond was criticised for having an aggressive spread of 370 bp over US treasuries when it was launched, but has tightened to 260bp-264bp in the secondary market.
As Khan worked through due diligence ahead of launching the sovereign's 300 million dollars-500 million dollars five year floating rate Sukuk a bond compliant with the Islamic principles of Shariah law, he considers where Pakistan will be in five year's time. "We are already witnessing economic growth," he said." In the next three to four years we are confident of achieving our target of eight percent growth".
Khan adds that Pakistan intends to make sure its fiscal deficit does not exceed three percent of GDP, and that its current account stays around one percent of GDP in the next three to four years.
"We have been telling investors that we are maintaining a consistent and transparent economic policy and that policy will continue." Khan also said that he expects to see Pakistan's rating continue to improve.
Khan believes that the presence of Shaukat Aziz, the former Citigroup head of corporate and investment banking for Asia who became finance minister in 1999, and Prime Minister in August 2004, is a guarantee to investors that reform will continue.
The Asian Review said the February Eurobond was used to refinance expensive multilateral debt.
Khan did not say exactly what the proceeds of the Sukuk would be used for, but notes that "repayment of expensive loans is one element of our debt reduction strategy." It added that Khan is open to the idea of issuing in other currencies, perhaps Euros.
"It's a good idea to diversify currencies, but we have not yet taken any decision in this respect, " he said. "We have not been shown a proposal for a deal in Euros," he added, somewhat surprisingly, given the currency's recent vogue in Asia.
It added that Pakistan demonstrated the true level of international demand for its Eurobond by not initially selling it to onshore investors.
Khan admits that Pakistan's Sukuk would have a natural following in the Middle East but stresses it will not be targeted exclusively at Middle Eastern investors, and will roadshow in Europe and elsewhere in Asia as well.
Khan expects that Pakistan will not be a stranger to the offshore market in the years to come. "I would not use the word frequent, but I would certainly say, I expect us to be in the markets almost every year. We want to maintain our relationship with the international capital markets and we will be working towards extending our yield curve", Khan told the Asian Review.