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Pakistan’s perceived default risk rises significantly

  • 5-year CDS has increased from 2,208bps to 6,419bps in one month, says brokerage house
Published November 14, 2022
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Pakistan's perceived risk of default, measured by the 5-year credit default swap (CDS), has spiked in the last one month and hit 64.19% on November 11.

As per data provided by brokerage house Arif Habib Limited (AHL) on Monday, Pakistan's 5-Year CDS increased from 2,208bps in October to 6,419bps in November, an increase of 4,210bps in one month.

A CDS is a financial derivative that allows an investor to swap or offset their credit risk with that of another investor. To swap the risk of default, the lender buys a CDS from another investor who agrees to reimburse them if the borrower defaults.

“Pakistan’s debt insurance cost is increasing, which means the country’s default perception is rising,” said an analyst on condition of anonymity.

“This means that the credit market has become more inaccessible for Pakistan, and getting commercial loans from banks or through Euro bonds would become very difficult.”

As of May 31, 2022, the country’s total external debt and liabilities amounted to $126.07 billion, of which $85.64 billion was on account of public external debt.

“The increase in CDS is driven by ongoing political instability in the country. Moreover, the decline in foreign exchange reserves and remittances and the country’s inability to secure funding in the wake of recent floods is driving the perception,” said the analyst.

According to latest data available, foreign exchange reserves held by the State Bank of Pakistan (SBP) plunged $956 million on a weekly basis, clocking in $7.96 billion as of November 4, 2022. Total liquid foreign reserves held by the country stood at $13.72 billion. Net foreign reserves held by commercial banks clocked in at $5.76 billion.

Moreover, the inflow of remittances in Pakistan fell nearly 16% in October 2022 on a year-on-year basis to $2.215 billion as informal and illegal channels of transferring money took their toll, coupled with a global economic slowdown that exacerbated the issue.

The market expert said the government needs to implement measures to curb the outflow of foreign currency, and improve its foreign exchange position.

Last week, Federal Minister for Finance and Revenue Ishaq Dar said that the government has secured financial commitments of around $13 billion to $14 billion from friendly countries to meet Pakistan’s financing needs.

“In the coming 12 months, Pakistan has to pay back $22 billion to meet its multilateral and commercial liabilities. The country’s current account deficit is projected to be around $10 billion-12 billion, which needs to be paid back,” Dar said in an interview with a private channel.

“However, we have covered half the mileage ... we have secured financial commitments of around $13 billion to $14 billion, which includes commitments from China and Saudi Arabia,” said Dar.


Comments are closed.

Mirza Nov 14, 2022 09:46pm
We pray for success of Pakistan n Dar Doctrine in economic stability.
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Shahzad Ahmed Nov 15, 2022 12:59am
This situation is purely due to political uncertainty which is a chronic disease halting our economic, fiscal, social and all other developments. Good example of Bangladesh how they transformed to achieve economic turnaround whereas our pot of begging from everyone is infinite, very unfortunate and sad.
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Uzaif Nadeen Nov 15, 2022 01:29am
Chain my Data block money is united States is access my Data not black recovery database ol data any receive sand power full cryptic data access my account canact power full cryptic Gold bar clamant change investment in billion dollars investment my Data recovery my data united States or my cryptic by Natwork my Data access hi profile is
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Zia Ullah Khan Nov 15, 2022 01:56pm
Time to bring Miftah Ismael back....
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Abdullah Nov 15, 2022 02:51pm
The marches being carried out by pti are becoming a big reason for such a mess and anyhow imran himself accepted there was no US involvement.So he just wants anarchy and chaos in pakistan.Probably he is really foreign funded.
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Fazeel Siddiqui (Overseas Pakistani) Nov 15, 2022 04:10pm
It all started with regime change operation from March. Before then that since 2020 establishment was already working to defame IK for not abiding them on each & everything.
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Adnan Nov 16, 2022 12:13pm
@Abdullah, If you think Imran said anything like that, congratulations you have been fooled by patwari propaganda produced by generals.
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Umer. Nov 17, 2022 10:45pm
@Abdullah, I'm amazed by someone like u who reads BR articles and is unable to read simple English written in the interview. There is a difference between putting things behind and denying their existence in the first place.
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