Investors are becoming increasingly cautious about Pakistan’s ability to pay its bond commitments. Therefore the country’s five-year credit default swap has widened dramatically.
According to statistics provided by Arif Habib Limited, the CDS rose by 394 basis points (bps) from the previous day to 64.19 percent. Since October 11, 2022, the CDS has risen by 4,210 bps.
Having been at 52% at the beginning of this month, the CDS began to increase. This rise implies that investors were concerned that the nation would fail to meet its obligation to repay credit holders $1 billion on December 5, 2022, when the Sukuk is slated to mature.
“The spike in the CDS is due to the country’s continuing political turmoil,” stated an expert.
“Additionally, the country’s danger of defaulting on its foreign debt is increasing owing to a decline in its foreign exchange reserves and remittances, as well as a lack of a timeline to obtain funding from friendly nations,” he said.
This quarter is anticipated to witness significant potential outflows due to foreign loan repayments, which might put pressure on the country’s foreign currency reserves and currency.
Due to external debt service, the State Bank of Pakistan’s (SBP) foreign exchange reserves decreased by $956 million to $7.9 billion on November 4.
Pakistan’s foreign funding requirements for this fiscal year were projected to be between $32-$34 billion.
China and Saudi Arabia have agreed to help Pakistan with a $13 billion cash package. However, neither country specified a date for when the pledged funds would begin to arrive.
Recent events have resulted in the postponement of Saudi Crown Prince Mohammad Bin Salman’s visit to Pakistan. In addition, the date for the International Monetary Fund (IMF) and Pakistan to begin the ninth review of the Extended Fund Facility has not yet been determined.
However, it is anticipated that contributions from the World Bank, Asian Development Bank, Asian Infrastructure Investment Bank, and other multilateral donors will continue.
These will replace losses from remittances and exports and bolster the international trade balance.
On Monday, the yield on the third Pakistan International Sukuk Company Limited five-year bond climbed by 964 basis points to 69.96%. However, the yield on a 10-year Eurobond expiring on April 15, 2024, declined from 63.04% on Friday to 60.94% on Monday.
