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KARACHI: Pakistan’s dollar bond maturing in 2022 fell by 12 percent on Friday whereas dollar bond maturing in 2024 and 2025 fell by 15 percent, and 17 percent, respectively. Yields on 2024 bond have now been increased to 60 percent (up 1,400bps on day-on-day basis) whereas yields on 2025 bond are now up to 40 percent (up 800bps on DoD basis).

This interestingly comes after Prime Minister Shahbaz Sharif statement who appealed for debt relief from rich nations, an analyst at Topline Securities said.

Bloomberg in its article titled “Pakistan PM says ‘All Hell’ to break loose without debt deal” quoted Shahbaz Sharif where he made an urgent appeal for debt relief from rich nations. This is on account of losses faced by the country due to floods which was exacerbated by climate change. He further stated that the government has recently signed an ‘IMF program’ with tough conditionalities which includes imposition of taxes on petroleum and electricity as per Bloomberg report.

Shahbaz later tweeted stating “There is primarily one argument I made in my interview with Bloomberg. Given the vast scale and extent of destruction caused by the floods, the rich countries should consider giving debt relief to Pakistan so that we can stand up on our feet. Climate disaster is not of our making.”

“We think Pakistan Prime Minister is referring to relief by Bi-Lateral lenders and not necessarily restructuring of bonds,” Umair Naseer at Topline Securities said.

All hell to break loose without debt relief: PM Shehbaz

Interestingly, no major change was witnessed in credit default swap on Friday. Since it’s a thinly traded market, some selling pressure on Pak dollar bonds could have resulted in sharp price fall, Umair Naseer believes.

Furthermore in a recent interview, Miftah Ismail, Pakistan Finance Minister has retreated government’s resolve to meet its debt obligations and continue with the reform process that has been initiated. “Hence, we believe that the likelihood of Pakistan defaulting on its debt payment is low in short run”, Umair Naseer said.

Further, expected Multi-Lateral and Bi-Lateral flows post floods is also likely to support pressure on foreign exchange reserves of the country. As per news reports, World Bank, Asian Development Bank, Asian Infrastructure Bank, and few friendly countries have already committed flood related aid/funding which could be to the tune of $1.5-2.0 billion.

Pressures on current account have also started to ease after government restricted imports with August 2022 current account deficit clocking in at $703 million versus $1.2 billion in July 2022. “We expect this trend to continue which is likely to support the external account situation”, Umair Naseer said adding that any upside in international oil prices would remain a key risk.

Copyright Business Recorder, 2022

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