Details

Technical Note

WHY OVERSEAS PAKISTAN SAVINGS CERTIFICATE (OPSC) IS A BETTER ALTERNATIVE TO EURO BOND?

Fahd Rehman

INDUSTRY : Financial Instruments

AREA : Finance

ORGANIZATION :

LENGTH : 6

LUMS No : 02-616-2018-2

PUBLICATION YEAR : 2018

KEYWORDS:

DESCRIPTION:

Pakistan experiences a low national savings rate which requires external financing to borrow from the international financial market either to meet its existing external commitment or to increase the economic growth. In the presence of low Foreign Direct Investment (FDI) in Pakistan, the policy makers have to resort to external borrowing which increases the dollar liabilities of the country. The Government of Pakistan has already borrowed through Eurobond to relax the external financial constraints. When economic circumstances are far from normal, Eurobond commands high interest rate owing to default risk. Borrowing through Eurobond is also criticised on grounds that it is prone to exchange rate loss and turns out to be expensive in the medium term. This policy instrument requires a better alternative in the form of the diaspora bond named as Overseas Pakistanis Savings Certificate (OPSC) which will attract the attention of the diaspora owing to patriotic sentiments and will command low interest rate. Last but not least, OPSC would act as a hedge in tough economic circumstances when there is an urgent need to fulfill the due dollar liabilities.

LEARNING OBJECTIVES:

SUBJECTS COVERED:

Public Policy