Pakistan will not default: SBP governor

Risk of default spiked to 13-year high at 52.8% earlier this week

KARACHI:

The governor of the State Bank of Pakistan (SBP) downplayed the growing global concern that there was an elevated risk of the country defaulting on its international debt obligations, saying it would pay the maturing debt on time.

Addressing the Pakistan Stock Exchange (PSX) on Thursday, SBP Governor Jameel Ahmed said, “Let me assure you that we will be meeting all our debt obligations on time and there should be no concern about that.”

Recently, two global credit rating agencies including Moody’s Investors Service and Fitch Ratings downgraded Pakistan’s credit rat- ing on apprehensions that the country’s debt repayment capacity has weakened in the wake of the devastating floods which resulted in over $30 billion losses to the domestic economy.

“Pakistan received a $1.5 billion loan from the Asian Development Bank (ADB) recently. Additional inflows from some other multilateral and bilateral institutions including the Asian Infrastructure Investment Bank (AIIB) are also expected soon,” explained Ahmed.

“These inflows not only help meet our debt obligations but also improve our foreign exchange reserves,” he noted.

“Earlier, the International Monetary Fund (IMF) revived its $6.5 billion loan programme for Pakistan through a combined seventh and eighth review of the economy on August 29, 2022,” he recalled.

With the receipt of ADB inflows of $1.5 billion, the country’s foreign exchange reserves are estimated to improve by 20% to a three month high at around $9 billion, recovering from the 40-month low hit at $7.6 billion on October 14, 2022.

Pakistan’s risk of default – measured by a 5-year credit default swap (CDS) – spiked to a 13-year high at 52.8% earlier this week, as compared to less than 10% be- fore Covid-19 broke out in Pakistan in February, 2020.

The historical surge in the risk of default reflected the growing concerns of global investors on the timely re- payment of maturing debt.

Global investors have taken positions in Pakistan’s US dollar-denominated bonds (Eurobond and Sukuk) in the international markets. The country is scheduled to repay $1 billion against a maturing Sukuk on December 5, 2022.

Finance Minister Ishaq Dar, and his predecessor Miftah Ismail, also assured the global investors, time and again, that the country would repay its debt when the time comes.

This was the SBP governor’s first public appearance since he was appointed for a five-year term in August, 2022. Ahmed came to the bourse to formally launch the Roshan Equity Investment (REI) which is an online investment and trade facility made available to overseas Pakistanis under the Roshan Digital Accounts’ (RDAs) banking.

“So far, over 10,000 non-resident Pakistanis from across the globe have invested $35 million (Rs7.8 billion) in stocks of companies listed at the PSX,” informed the governor.

“While investment via RDA into the stock exchange has been relatively subdued, amounting to around only $35 million,” he added, “investments into the conventional and Shariah-compliant Naya Pakistan certificates through RDA stood at $1.7 billion and $1.6 billion respectively.”

“Over 484,000 RDAs have been opened by non-resident Pakistanis from 175 countries across the world. The total inflows from these RDAs stand at around $5.28 billion,” he commented. “The launch of the Roshan Equity Investment (at the PSX) was made at an opportune time,” he said, adding that PSX’s market capitalisation to GDP stands at 10%, which is low as compared to that of regional countries. PSX Chief Operating Officer, Nadir Rahman said that the “stock market is working with the central bank to enable retail investors to invest and trade in lucrative sovereign debt securities like treasury bills (T-bills) and Pakistan Investment Bonds (PIBs) through PSX.”

“The opportunity of investing in debt securities has been available at PSX since 2004. However, this is too difficult for retail investors to take a position on, at present,” he added.