By Naveed Naqvi
ISLAMABAD: Pakistan is likely to ‘dodge’ default in the coming six months, however, its economic woes won’t be over as the country would have to worry about a huge dollar debt repayment in April 2024, a Bloomberg economist said.
Pakistan is in dire need of funds to cover its current account deficit and debt obligations. The country’s official foreign reserves have fallen to as low as $4.5 billion, barely enough to cover three weeks of imports.
Pakistan’s ninth review of staff-level talks with the IMF for the release of its next tranche has been delayed since September because of the inability of both sides to strike a consensus on a number of issues though finance minister Ishaq Dar repeatedly said all targets for the $1.2 billion tranche had been completed.
“The International Monetary Fund’s help is enough to get the country through the end of June. But investors are now worried about a big dollar debt repayment due in April 2024 and are pricing those bonds at a distressed level. This means Pakistan needs more external aid,” Ankur Shukla, Bloomberg economist for the South Asia region said in a report titled PAKISTAN INSIGHT.
As Pakistan faces a looming balance of payments crisis, investors and economists have voiced fears that the country may default on its payments. Minister Ishaq , while acknowledging the economy is in a tough spot, has repeatedly said the country will not default.
Shukla said the IMF could withhold loan tranches of $2.6 billion from Pakistan, “but this is unlikely given the country’s desperate need in the wake of last summer’s floods”.
“The IMF money is needed to unlock $5 billion in financing expected from creditor nations and $1.7 billion in aid from the World Bank.”
Shukla said the amount would be enough to cover $5.9 billion in debt payments and estimated account deficits through the end of the fiscal year ending in June. However, it remained unsure how Pakistan would get through 12 months after that when its dollar financing needs would total at least $11 billion.
“This includes an estimated current account deficit of $8.8 billion and $2.2 billion in external debt repayments, among these a $1 billion dollar bond maturing in April 2024,” he said.
He said Pakistan’s current foreign exchange reserves are enough to cover the next five months of funding needs.
“External aid would help Pakistan increase its foreign exchange reserves to $14.9 billion. “This should cover dollar payments only through March 2024 — leaving the April bond repayment in question.
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