The diaspora bond

Will the government’s new diaspora bond bring in a significant chuck of cash? Sceptics are unsure of its ability to deliver, despite the favourable terms on offer for diaspora investors. The rate on offer – 6.25-6.75 percent – is a fairly high one and is likely to pull in anyone looking for safe returns on their savings, but it is important to distinguish between the economic motive and the kind of emotional motivation that the PTI claims it will be tapping into. In this sense, one must question what the purpose of the so-called ‘diaspora bond’ is. The money will likely be used to cover the fiscal deficit at a fairly high financing cost – although still under the bond issued by the PML-N government. For overseas Pakistanis, their decision is to be based less on their belief in the PTI government’s economic agenda, and more on the kind of interest rate on offer and the kind of assurance offered that the government will pay back.The fact is that this will be an investment decision – in which case, one must wonder why it is being sold as a ‘Pakistan Banao Bond.’ One would imagine a bond that claims to build Pakistan to be geared towards government investments in infrastructure, industry or economic development in Pakistan. The Pakistan Banao Certificate comes with no such promises, which leads the idea that the bond is some form of charity or can be used as some kind of indicator for trust for the PTI.This bond should be seen as any other bond – only that it is geared towards the pockets of the Pakistani diaspora. One must wonder what the purpose of the PTI’s deliberate confusion of charity and investment is. From the point of view of an investor, the government’s decision to prioritise encashing the bond in rupees will raise significant questions. If the rupee does not stabilise, investors are likely to make a loss on their bonds. If the government is guaranteeing returns in dollars, then the interest rate on offer is fairly high and is likely to do add to the many unfavourable loans that the country has to pay back. If the Pakistan Banao Certificates were geared towards promoting investment in the country’s economy, it would still be an interesting prospect. As it stands, the bonds are just another expensive instrument to curb the short-term balance of payment crisis. The only long-term impact will be more debt payments.

from The News International - Editorial http://bit.ly/2t8KkiR