Friday, March 3, 2023

Markets prepare for Pakistan's potential default as its $7 billion debt grows

Markets brace for Pakistan default risk as $7 billion debt looms

 ISLAMABAD: As Pakistan struggles to meet its debt repayment obligations of billions of dollars by June, bondholders are anticipating a possible default.

According to Fitch Ratings, investors weighed the nation's ability to honor $7 billion in repayments in the coming months, including a $2 billion Chinese loan due in March, as the country's dollar bonds due next year fell to their lowest level since November. The State Bank of Pakistan reports that at close, the rupee fell 6.7 percent to 285.09 per dollar.

Moody's Investors Service downgraded Pakistan to junk status this week as the country faced its worst economic crisis in decades, with record-high inflation and falling foreign reserves. To prevent a default, Pakistani authorities rely on an IMF bailout loan, which has remained elusive. Edwin Gutierrez, abrdn plc's London-based head of emerging-market sovereign debt, stated, "There is definitely a higher risk for a default as negotiations with the Fund keep getting drawn out longer than expected while reserves continue to dwindle to precarious levels."

For the third day in a row, the 8.25 percent bond that Pakistan will issue in April of next year decreased by 2.2 cents to 49.8 cents on the dollar. In a note published on Wednesday, Moody's estimated that the country will require approximately $11 billion in external financing for the fiscal year that will end in June. This amount includes the payment of $7 billion in external debt.

In an analyst briefing, the nation's governor of the central bank, Jameel Ahmad, stated that the nation is committed to making all debt payments and that the country needs to repay approximately $3 billion in the upcoming payments, while $4 billion is anticipated to be rolled over.

Moody's analysts led by Grace Lim said in a statement on Tuesday, when the company downgraded Pakistan's credit rating to Caa3, that "disbursements may not be secured in time to avoid a default" in the current extremely fragile balance of payments situation.

According to Finance Minister Ishaq Dar, Pakistan received a $700 million loan facility from China Development Bank in February. According to a report by China Central Television, Premier Li Keqiang stated to the head of the IMF that China is open to participating "in a constructive manner" in multilateral efforts to assist nations that are heavily indebted.

When asked if China would roll over its loans to Pakistan, the Chinese Foreign Ministry stated that it is urging all creditors to cooperate constructively.

At a regular briefing on Thursday, spokeswoman Mao Ning said, "China calls for a concerted effort of all parties to play a constructive role on the economic and social developments of Pakistan." She said that "the Western-led commercial creditors and multilateral financial institutions are the basic creditors for developing countries."

This week, Pakistan Prime Minister Shehbaz Sharif stated that an agreement with the International Monetary Fund could be reached within a few days. Dar stated, "We expect to sign Staff Level Agreement with IMF by next week." The negotiations "are about to conclude." on Thursday in a tweet. The nation has previously failed to meet such deadlines.

EleganceWorks Voices

Catch Daily Highlights In Your Email

* indicates required

Post Top Ad