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Tuesday, May 21, 2024

Pakistan is at risk of default: Bloomberg

Default risk will eventually go down with IMF loan renewal but still it is high.

According to Bloomberg’s ranking of sovereign debt vulnerability of countries to determine the highest default risk in 2022, Pakistan is at fourth position. The sovereign debt vulnerability ranking gives us insight into which countries are the most likely to default on their debt obligations. Pakistan has government bond yield standing at 16.8 percent, 5Y credit default swap spread of 1492 Bps, interest expense of 4.8 percent of GDP, and 71.3 percent of GDP is the government debt 2022.

Pakistan escaped a looming default as the International Monetary Fund (IMF) announced a staff-level agreement to extend the bailout package and increased it to $7 billion on Thursday, but the international community was not relenting in its pressure to keep Islamabad on track. Default risk will eventually go down with IMF loan renewal but still it is high.

Read more: Pakistan on the verge of bankruptcy

However, long-term sustainability lies in focusing on export growth in Pakistan. The exports from the country witnessed an increase of 25.51pc during the fiscal year 2021-22 as compared to the corresponding period of last year, Pakistan Bureau of Statistics (PBS) reported.

According to PBS data, the exports from the country were recorded at $31.760b during July-June (2021-22) against the exports of $25.304b recorded during July-June (2020-21), showing growth of 25.51pc.

On the other hand, amid heavy energy crisis in Pakistan and subsequent suspension of gas supply, 400 textile mills have been closed. Senior Vice-Chairman of All Pakistan Textile Mills Association (APTMA) Kamran Arshad at a press conference stated that a 26 per cent upsurge in the export of textiles during the fiscal year 2021-22 was made possible only due to the supply of energy at a regionally competitive tariff, stressing that a loss of almost USD 1 billion in exports has already been incurred.

Read more: 400 textile mills facing shutdown

There is a dire need to strengthen the export sector as it is a backbone of the economy through which stabilization at macro level can be achieved.

Moreover, Sri Lanka was the first nation to stop paying its foreign bondholders this year, burdened by unwieldy food and fuel costs that stoked protests and political chaos. Russia followed in June after it was sanctioned over the war in Ukraine.

Now, focus is turning to El Salvador, Ghana, Egypt, Tunisia and Pakistan — nations that Bloomberg Economics sees as vulnerable to default.