Pakistan bonds fall as investors brace for Afghanistan fallout

Pakistan’s international bonds came under selling pressure on Monday as market investors brace themselves for the fallout from the crisis in Afghanistan.

Afghanistan’s US-backed government collapsed over the weekend as Taliban fighters seized the capital, Kabul, following a stunning advance that had seen the Islamist group take over most of the country.

The likely evacuation of refugees from Afghanistan could strain the finances of neighbouring countries, fund managers say, and there is also concern over the potential for ‘western retaliation’ against Pakistan for providing a safe haven for the Taliban.

As per a report of Financial Times, Pakistan’s dollar-denominated bonds fell by about one per cent to just above 100 cents on the dollar, with some longer dated issues sinking to their lowest prices in nine months. The yield on a 10-year bond issued in April this year, which moves in the opposite direction to the debt’s price, climbed by about a quarter of a percentage point to roughly 7.3 per cent.

The country’s $8.8bn of dollar bonds have now fallen by about four per cent since mid-June.

“There are a few concerns driving this move,” said head of emerging market debt at Legal and General Investment Management, Uday Patnaik to Financial Times. “One is the refugee crisis — clearly Pakistan is going to be affected by that, and that’s going to be expensive.”

“A lot of people are also debating the possibility of formal or informal sanctions on Pakistan for working with the Taliban. We’ve been underweight for the last couple months because of these issues but like everyone else we didn’t expect this to happen so quickly.”

Even prior to the recent sell-off, Pakistan already had some of the highest bond yields among emerging economies that are not considered to be at immediate risk of default. Its debt is rated B minus by Standard & Poor’s and by Fitch.

The market’s focus has fallen on Afghanistan’s neighbours as the country itself does not have any internationally traded debt, with the ousted government having received most of its financing from western governments and other donors such as the World Bank and the IMF.

The Current reached out to Chairman of KASB Securities, Ali Farid Khwaja for a word on this situation and said: “Global investors are and will be concerned about the spillover impact of the fall of Kabul and takeover by Taliban. Of course, they will need assurance that such a thing cannot happen in Pakistan and a Taliban government in Afghanistan will not destabilize Pakistan. The jury is still out. I think there are two important aspects of this. First the world would want to see whether Pakistan is standing by them on the values they claim to preach and promote, or do we share the ethos with Taliban. So far, from the commentary it seems that it is the latter. Except for a few media celebrities most politicians seems to be pleased with the Taliban victory. This alone is a bit disturbing purely from an image perspective. Secondly, we need to prove that the wall we have made on the border with Afghanistan will be strong enough to keep Taliban out of Pakistan. Global markets are sensitive to sentiment and hence managing perception is very important,” he added.

While a Bloomberg journalist in Pakistan, Faseeh Mangi has also shed some light on the situation of Pakistan’s dollar bonds after Taliban takeover in Afghanistan.

Pakistan’s dollar bonds take a beating amid Taliban takeover in Afghanistan. Follow this link for round-the-clock updates on Afghanistan https://t.co/dJZrlOs3pj pic.twitter.com/gYuUOS92fO

— Faseeh Mangi (@FaseehMangi) August 16, 2021