Daily Times

Recently launched “Pakistan Banao Certificate” by the government of Pakistan is, in fact, diaspora bond. Diaspora denotes expatriates living out of their native country. Diaspora bond is issued by a country to its non-residents overseas citizens with the purpose to raise inexpensive money to support the mother country in bad times. Since 1951, Israel tapped the wealth of the affluent Jews in developed countries through diaspora bonds and collected over US$ 34 billion while India raised about US$ 11.3 billion on certain occasions to address balance of payment crisis. Nigeria too has resorted to diaspora to attract US$ 300 million in 2017.

Ever since coming into power, the PTI government is straining hard to steer the country out of current account and fiscal deficits. But the government prefers benign remedy before opting out bitter pills of IMF, if required. Among other sources of financial aid from the friendly states, Prime Minister also looks forward to the diaspora i.e. the 8 million overseas Pakistanis who send home remittances of around US$ 20 billion every year.

These Pakistanis living abroad have always supported Pakistan in the hours of distress. So, with the idea of attracting investment from them, “Pakistan Banao Certificates” have been floated, for a period of 3 years @6.25% per annum and 5 years 6.75% per annum, with a minimum investment of US $5000 and multiples. This dollar-denominated diaspora bond has the incentives of exemption from withholding tax, compulsory deduction of zakat and premature encashment in Pak Rupee without penalty. The government aims at raising US $ 3 billion from Pakistan Banao Certificate. State Bank of Pakistan has issued its DMMD Circular # 02/2019 Dated.31.01.2019 wherein operational instructions for investment in PBCs have been elaborated.

A close analysis of the rationale and inherent features of the diaspora bond “Pakistan Banao Certificate” would transpire a win-win situation for both the issuing government as well as the overseas investors from Pakistan community.

Benefits to the Issuing Government:

1. PBCs would enable Pakistan to raise low cost capital through patriotism. A very positive response from overseas Pakistanis is anticipated because they always contribute to national cause.

2. Success at raising the desired volume of funds through PBCs can bring favourable impact on the sovereign credit rating of the country.

3. If this maiden initiative proves successful, it can make available a reliable source of funding for the government.

4. PBCs could become a source of emergency finance when, in difficult times, access to international capital market is minimized or the conditionalities of IMF and other global lending institutions are too harsh.

5. Generally, in diaspora bonds, the floating government enjoys ‘patriotism discount’ whereby the success is achieved at attracting long term funds, as a result of patriotism.

Rationale for Investors (overseas Pakistanis):

1. The overseas Pakistanis get the opportunity to diversify their assets away from their adopted countries that reduces investment risk.

2. Pakistan Banao Certificates produce fixed rate of return that eliminates the volatility risk of the floating rate.

3. The diaspora feel satisfaction in contributing to the economic growth of the motherland. The investors can have delightful feeling of patriotism.

4. Investment in PBCs reduces concern about the currency devaluation.

5. Expatriate investors of PBCs have their current and contingent liabilities in their native countries. Therefore, they will not be averse to receive return and encashment of PBCs in Pak Rupee.

6. PBCs are characterized by reduced default risk because the issuing government has the ability to pay principal and interest in Pak Rupee.

7. The migrant investors will be able to receive discount on PBCs in the home country.

8. With investment in the PBCs, the Pakistanis living abroad can establish a belief of having some influence on policies at home country e.g. exemptions on tax & compulsory zakat deduction.

The target investors of Pakistan Banao Certificate should come up to join hands with the government of Pakistan that is looking for long term solutions to the economic woes of the country that has been subject to ad hoc measures, over the decades. Characteristics of the PBCs highlighted above are equally favourable for both the investor and the investee. Enthusiastic purchase of the PBCs would certainly enable the revival of Pakistan’s economy, at this critical juncture.

The writer is Country Manager JSC Subsidiary Bank NBP Kazakhstan, a foreign subsidiary of National Bank of Pakistan

Published in Daily Times, February 8^th 2019.