Pakistan’s Bond Rally Faces Election Test as IMF Bailout Ends; Bloomberg

Nation to hold elections Feb. 8; IMF program expires in March
Dollar bonds returned 9% in January

The rally in Pakistan’s dollar bonds, Asia’s top performer in January, is set to face hiccups as investors await a new leader to strike a funding deal with the International Monetary Fund to keep the economy afloat.

After handing over investors a return of almost 100% in 2023, Pakistan notes gained 9% last month, catapulting them among the best in the world.

The stellar performance may take a breather as the South Asian nation votes on Thursday to elect a new government, which may negotiate for a fresh IMF bailout as the current one expires in March.

Pakistan’s elections come at a crucial time as the nation faces $25 billion of external debt payments in the fiscal year starting July, about three times its foreign-exchange reserves.

Pakistan has about $1 billion in dollar-denominated bonds due in April.

While markets have priced out the risk of default for those notes, the payment will eat into the nation’s dollar stockpile, which totaled $8.2 billion in late January.

The nation’s finances will collapse without a fresh bailout, according to all 12 respondents in a recent Bloomberg survey.