The International Monetary Fund announced on Wednesday that it had reached a staff-level agreement with Pakistan on reviewing some lending programs, which could enable the disbursement of financing worth about $1.21 billion, subject to the approval of the Fund’s Executive Board.
If the Council approves the agreement, Pakistan will be able to obtain about $1 billion under the Extended Fund Facility (EFF), and $210 million under the Resilience and Sustainability Facility (RSF) allocated to climate issues, bringing the total amounts disbursed under the two programs to about $5.7 billion.
Pakistan still relies on external financing to bolster its foreign exchange reserves and meet debt repayment obligations.
The Fund stated that the Pakistani authorities, with the support of the Extended Fund Facility, succeeded in dealing with the repercussions of the conflict in the Middle East, while strong policies contributed to maintaining macroeconomic stability.
However, the Fund indicated that risks continued to rise due to geopolitical tensions, energy price volatility, tightening global financial conditions, and trade disruptions.
Ahmed Moopen, chief economist at Standard & Poor's Market Intelligence, said earlier this year that Pakistan is considered the most vulnerable of the major economies in the Asia-Pacific region to be affected by a long-term conflict in the Middle East, given its dependence on energy imports from the Gulf, remittances from workers abroad, and financial support coming from the region.
Bond yields in the euro zone recorded a new sharp rise on Thursday in conjunction with the rise in energy prices, while investors continued to sell bonds of the most indebted countries, such as France and Italy, leading to a widening of the associated risk premium.
A global sell-off in bond markets, driven by increasing bets on raising interest rates by central banks, along with concerns about government debt burdens, pushed yields to their highest levels in decades in many euro zone countries, according to Reuters.
France was the most affected in recent days and weeks, as it struggled to control a budget deficit exceeding 5 percent of gross domestic product. This led to a jump in the risk premium on its bonds, one of the closely followed indicators, to its highest levels since the euro zone crisis in 2012.
The French 10-year bond yield rose 6 basis points to 4.931 percent on Thursday, approaching the 24-year high of 4.994 percent reached on Friday.
The spread between French and German 10-year bond yields, a measure of the risk premium associated with France, also widened by 4 basis points to 142 basis points. The spread reached about 160 basis points last week, its highest level since 2012.
In contrast, the German 10-year bond yield, which is the benchmark for bonds in the euro zone, rose by two basis points to 3.504 percent on Thursday. Yields move in the opposite direction to bond prices.
German bonds benefited this week from their status as a safe haven asset, as their yields fell sharply last week, while other bond yields jumped, and recorded a much lower rise this week compared to their counterparts.
The main driver for markets on Thursday was a rise in energy prices again, driven by concerns about supplies from the Middle East.
Brent crude rose 3 percent to $103 a barrel, approaching its highest price in a week.
“Risk sentiment remains fragile,” said Eric Lim, interest rate strategist at Commerzbank.
Meanwhile, 10-year US Treasury yields, which determine the course of borrowing costs around the world, rose 5 basis points to 5.331 percent. On Wednesday, yields reached their highest levels since 2002, before declining following a strong auction to sell 10-year bonds.
Lim added: “Given the potential catalysts for today’s session, it appears that the market’s attention will remain focused on any potential signals or clarifications that may be issued by the European Central Bank.”
Philip Lane, chief economist at the European Central Bank, is scheduled to speak later on Thursday, following comments on Wednesday by Emmanuel Moulin, head of the Bank of France, that France does not need ECB support at the moment.
Short-term bond yields, which are strongly influenced by the European Central Bank's interest rate expectations, also rose on Thursday, as the two-year German bond yield rose by two basis points to 3.056 percent.
Two-year German bond yields fell on Wednesday, after heavy selling in bond markets raised concerns about economic growth, prompting traders to reduce their bets on the European Central Bank raising interest rates further.
German exports unexpectedly fell in August, hurt by a sharp decline in exports to the United States. Data from the Federal Statistical Office, released on Thursday, showed exports falling by 0.8 percent compared to the previous month.
This result was contrary to expectations that indicated an increase in exports by 0.6 percent, according to a poll conducted by Reuters. On the other hand, imports increased by 0.9 percent, after adjusting according to the calendar and seasonal factors, compared to July.
As a result, the trade surplus narrowed to 19.5 billion euros ($21.82 billion) in August, compared to 21.6 billion euros in July.
Exports to European Union countries decreased by 0.6 percent on a monthly basis, while exports to countries outside the European Union decreased by 1.1 percent.
Exports to the United States fell by 6.3 percent compared to July, while exports to the United Kingdom rose by 16.7 percent.
Meanwhile, exports to China rose by 4.7 percent, while imports from it increased by 11.0 percent.
