Crammed Pakistan is still reeling from ongoing unrest, but the country of 220 million people looks set to avoid a default in the next six months, Bloomberg reported on Monday.
Although it looks like the resumption of the International Monetary Fund’s (IMF) program will help the country navigate through late June, investors are concerned about a large dollar debt repayment due in April 2024 and are hyping those bonds at an emergency level.
This shows that Islamabad needs more external help to meet its debt repayment obligations.
Bloomberg Economics predicts that amid Pakistan’s desperate need after the catastrophic floods that caused $30 billion in damage, the lender of last resort – the IMF – will withdraw the remaining loan tranches totaling $2.6 billion will release.
Additionally, an IMF nod will help unlock $5 billion worth of financing from bilateral creditors and $1.7 billion from the World Bank. All of these funds will help cover $5.9 billion in debt payments and estimated double deficits through the end of the current fiscal year 2022-23.
However, an unanswered billion-dollar question is how Pakistan will fare over the next 12 months when the country would need at least $11 billion* in total financing – including a current account deficit estimated at $8.8 billion2 $.2 billion external. Debt repayments, including a $1 billion bond maturing in April 2024.
Currently, Pakistan has US$5.6 billion in foreign exchange reserves, enough to meet its financing needs over the next five months. The publication said foreign aid is expected to push the figure to $14.9 billion. This should only cover dollar payments until March 2024, although the repayment of the April bond remains in question.
Default risk is why the Pakistani bond, due April 2024, is trading at a discount of 46%.
The market risk assessment suggests that the country may need more external help from the IMF and/or other creditors.
*Figures assume loan renewals from bilateral creditors and international financial institutions.