Pakistan Bonds Face Uncertainty Amid Elections With IMF Bailout Expiring Next Month

Pakistan’s dollar bonds are expected to take hits as the current bailout program with the International Monetary Fund (IMF) ends in March 2024, reported Bloomberg on Monday.

A sovereign debt analyst who works at a UK-based global investment company, said, “the caretaker government is doing all the right things, but let’s see what happens when we have a real government. Therein lies the risk as the track record of Pakistani compliance under IMF programs is not great”.

Investors are sitting back until the country elects a new government highly tipped to strike an improved deal with the Washington-based lender in the coming months.

Another UK-based debt market analyst noted that Pakistan’s dollar bonds began 2024 strongly but volatility will likely stay high heading into elections (Thursday, February 8).

Meanwhile, a Singapore-based emerging-market sovereign analyst said there is still some upside to the potential of a smooth government transition followed by successful negotiations for a new IMF program. The lender’s support is critical to ensuring access to multilateral and bilateral funds to satisfy Islamabad’s external financing needs in the coming years.

Pakistani dollar-denominated maturities surged 9 percent in January which made the best-rated coupons in the world. This trend may take a break while the county votes on Thursday to elect a new government.

Notably, elections come at a time when Pakistan faces $25 billion in external debt payments next fiscal year, roughly three times its forex reserves. Pakistan has approximately $1 billion in dollar-denominated bonds due in April 2024. While markets have ruled out default on those maturities, the payment will hit Pakistan’s dollar reserves, which reached roughly $8.2 billion last month.

A recent Bloomberg survey revealed that the nation’s finances will collapse unless a new IMF bailout is achieved.

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