Pakistan’s credit default swap (CDS) spikes by 30 percentage points in a week to 92.53 per cent ahead of debt repayment, amid political unrest.
CDS touched an all-time high of 92.53 per cent on Monday, recording a one-session gain of 12.53 per cent, reported Pak vernacular media, Jang.
The increase in CDS indicates that there is a negative perception among international investors regarding Pakistan’s ability to pay debts and international obligations.
It also suggests that the risk of default is increasing rapidly, added the Pak vernacular media.
Analysts said the country’s sovereign dollar bonds would remain vulnerable until the political standoff between the government and the main opposition party of former prime minister Imran Khan is settled, reported The News International.
Pakistan’s economy is in upheaval, and its foreign reserves are quickly running out.
The central bank’s foreign exchange reserves stand at USD 7.959 billion as of November 11 and are enough for less than six weeks’ worth of imports, reported Geo News.
Despite the recent rollover of Chinese debt and fresh infusions from the World Bank and ADB, reserves have been declining.
As talks with the International Monetary Fund (IMF) over the ninth review of the loan facility come to a stalemate, its external financial strains are increasing, reported The News International.
Friendly nations have not made any definite funding pledges. After exports, remittances are the second-largest source of income, but those are declining too.
Along with the deteriorating economic fundamentals, Pakistan’s political instability forced the foreign debt markets to see its bonds as risky and politically unstable sovereigns for months.
According to Dr Salman Shah, the former finance minister, “it’s political instability that has heightened anxieties for Pakistan and, in turn, has hiked debt insurance premiums for the country’s bonds.”
Shah claimed that the market was waiting for the government to take some action to alter how foreign investors saw Pakistani bonds, reported The News International.
“First and foremost, the army chief should be named as soon as possible and without controversy. The political environment in the nation will become more stable as a result,” Shah said.
“Second, the USD 1 billion repayment on the Sukuk due on December 5 should be made on schedule. Third, a road map for the elections that was acceptable to all political parties needed to be announced. The CDS would start falling right away if these actions were adopted,” he said.
If not, everything would spiral out of control. The IMF was currently not providing Pakistan with significant support, he added.
“Since Pakistan must secure external financing to pay its foreign debt obligations, the economy demands complete attention. Therefore, it is necessary to carry out the IMF’s programme in letter and spirit, conduct structural reforms, particularly in the energy sector, and enhance the investment climate in the nation,” said Dr Shah.