Pakistan Likely to Remain ‘Default-Free’ for Next 6 Months

Pakistan is likely to remain default-free for the next 6 months but investor concerns over the country’s debt repayment issues are spelling trouble, reported Bloomberg Economics.

Investors have reservations about the South Asian nation’s large dollar debt repayment maturing in April 2024 but in the short-term, there’s still hope that the resumption of the International Monetary Fund (IMF) program will help the country survive till June 2022.

Bloomberg Economics predicted that the IMF will release the remaining bailout totaling $2.6 billion. Subsequently, the lender’s approval will help unlock $5 billion in financing from bilateral creditors and $1.7 billion from the World Bank. All funds will be used to cover $5.9 billion in debt payments and estimated deficits by the end of the current fiscal year.

The overall picture is still a bit unclear as to how Pakistan would finance itself for the next 12 months, when it needs around $11 billion or $8.8 billion current account deficit and $2.2 billion for external debt repayments (including a $1 billion bond payment in April 2024).

Currently, Pakistan’s forex reserves are enough to cover the country’s funding needs for the next five months. According to Bloomberg Economics, the external financing from multilateral lending partners will raise reserves to $14.9 billion. However, this should cover only dollar payments until March 2024, leaving the April bond repayment in doubt.

On the surface, Pakistan’s debt repayment issues in the next two years suggest a money crunch is likely, but the country’s latest exploits on the first day of the International Conference on Climate Resistant Pakistan held in Geneva offer support in the coming months.

Pakistan has secured over $10.5 billion in pledges from international creditors for reconstruction in flood-affected areas. The Islamic Development Bank Group has pledged $4.2 billion over three years, the World Bank has pledged $2 billion, and the Asian Infrastructure Investment Bank has pledged $1 billion.

Good friends in Saudi Arabia have also announced investments in Pakistan to be increased to $10 billion. His Royal Highness Prince Mohammed bin Salman bin Abdulaziz Al Saud, the Crown Prince and Prime Minister of Saudi Arabia has ordered a study to increase Saudi investments in Pakistan to $10 billion, building upon previous investments announced on August 25, 2022.