Pakistan likely to avoid default in next six months, but troubles yet to over: Bloomberg

Pakistan likely to avoid default in next six months, but troubles yet to over: Bloomberg

(BLOOMBERG) - Pakistan is expected to skip default in the next six months, but its troubles are not over, Bloomberg Economics said in a report on Monday.

According to Ankur Shukla, who covers South Asia at Bloomberg, said the International Monetary Fund (IMF) will extend assistance to the country through the end of June.

“But investors are now worried about a big dollar debt repayment in April 2024, and are pricing those bonds at a distressed level,” the report added, as it made the case for Pakistan needing more external aid.

The bond is trading at a 46% discount, reports suggest.

“Pakistan now has $5.6 billion in foreign exchange reserves, enough to cover the next five months of funding needs. External aid should boost the number to $14.9 billion. This should cover dollar payments only through March 2024 — leaving the April bond repayment in question,” the report added.

Pakistan is currently reeling from economic distress amid fast-depleting foreign exchange reserves, weakening rupee, and worsening macroeconomic indicators. It repaid some $1 billion over the weekend, which is likely to result in lower foreign exchange reserves when the State Bank of Pakistan (SBP) releases its data this week.

The Bloomberg report added that the IMF could still withhold remaining loan tranches totaling $2.6 billion.

“But we think this is unlikely given the country’s desperate need in the wake of last summer’s floods.”