Pakistan Needs Over $3 Billion to Meet its Debt Obligations and Avoid Default

With the threat of a dollar shortage looming as several debt payments near maturity, Pakistan requires more than $3 billion in quick cash to meet its debt obligations and avoid default, it is learnt reliably here.

External debt servicing for the cash-strapped South Asian nation now requires it to expedite the opening of letters of credit (LCs), make payments of bonds maturing in the months to come, and finance all debt payments to Paris Club creditor nations, sources in the Finance Ministry told Propakisitani.

According to sources, the country will have to make the first maturity payment of $1 billion against a government-issued Sukuk in December 2022, and another $1.17 billion to Paris Club countries during the current fiscal year.

They further mentioned that in order to resume economic guarantees from creditworthy institutions to any exporter of goods operating in Pakistan, a total of 4,000 LCs equivalent to $400 million must be cleared. According to a Finance Ministry official, LCs worth more than $1 billion are still pending, while cases worth more than $10,000 have been halted due to a shortage of US dollars in the money market.

The recent floods have exacerbated Pakistan’s liquidity and external credit weaknesses and vastly increase social spending needs, while government revenue is severely hit. Debt affordability, a long-standing credit weakness for Pakistan, is expected to remain extremely weak for the foreseeable future.

Moreover, elevated social and political risks compound the government’s difficulty in implementing reforms, including revenue-raising measures that would improve the country’s fiscal position and alleviate liquidity stresses.

Concerns have grown in recent weeks about Pakistan’s ability to raise funds to meet external financing requirements for dealing with the flood aftershocks that have caused $30 billion in damages. Pakistan’s ability to access the international market has been hampered by bond market volatility and a ratings downgrade by Moody’s last week, as well as downgrades by Fitch and S&P Global.

Pakistan’s key policy rate remained unchanged at 15 percent on Monday. Its external financing needs for the current fiscal year were estimated to be around $31 billion, with a funding cushion of around $6 billion in place to shore up rapidly depleting reserves which currently stand at $7.8 billion.