Country’s sovereign risk falls
KARACHI:
Pakistan’s creditworthiness has improved in the international market on the back of higher foreign inflows and reduction in the current account deficit.
According to global credit ratings monitor CMA, the country’s credit default swap has shrunk 217 basis points in the past 44 days to 502 basis points.
The CDS had peaked at 850 basis points on April 27 as economic indicators deteriorated. However, the index measuring riskiness of debt by the government has trended down since then. On June 5, the spread stood at 719 points.
The reduction has also helped the country improve a notch on the list of worst borrower governments of the world. Last month, Pakistan was ranked fourth among the least creditworthy nations behind Venezuela, Greece and Argentina. On Monday, Pakistan appeared at the fifth place on the same list behind the three mentioned countries and Ukraine.
Economists cited improvement in external stability parameters such as a 60 per cent reduction in current account deficit in financial year 2010 as the main reason. Inflows from the World Bank and Asian Development Bank also strengthened foreign exchange reserves.
But AKD economist Asad Fareed pointed out that repayment of many loans will put pressure on the country’s finances and that may deteriorate external accounts in coming months. “However, the timing is conducive because officials are visiting Pakistan and making fresh commitments,” added Fareed.
Analysts said quick disbursement of fresh aid pledged by the US can help increase liquidity in the economy. However, persistent increases in international oil prices can swell the country’s import bill. That can mean trouble for the creditworthiness in coming months.
Published in The Express Tribune, July 20th, 2010.
Pakistan’s creditworthiness has improved in the international market on the back of higher foreign inflows and reduction in the current account deficit.
According to global credit ratings monitor CMA, the country’s credit default swap has shrunk 217 basis points in the past 44 days to 502 basis points.
The CDS had peaked at 850 basis points on April 27 as economic indicators deteriorated. However, the index measuring riskiness of debt by the government has trended down since then. On June 5, the spread stood at 719 points.
The reduction has also helped the country improve a notch on the list of worst borrower governments of the world. Last month, Pakistan was ranked fourth among the least creditworthy nations behind Venezuela, Greece and Argentina. On Monday, Pakistan appeared at the fifth place on the same list behind the three mentioned countries and Ukraine.
Economists cited improvement in external stability parameters such as a 60 per cent reduction in current account deficit in financial year 2010 as the main reason. Inflows from the World Bank and Asian Development Bank also strengthened foreign exchange reserves.
But AKD economist Asad Fareed pointed out that repayment of many loans will put pressure on the country’s finances and that may deteriorate external accounts in coming months. “However, the timing is conducive because officials are visiting Pakistan and making fresh commitments,” added Fareed.
Analysts said quick disbursement of fresh aid pledged by the US can help increase liquidity in the economy. However, persistent increases in international oil prices can swell the country’s import bill. That can mean trouble for the creditworthiness in coming months.
Published in The Express Tribune, July 20th, 2010.