Following the country’s terrible floods and subsequent government warnings that certain debt payments may need to be stopped, investment firm JPMorgan has deemed the decline of Pakistan’s bonds to only a third of their face value justifiable.
Before last month’s floods, finances were already under pressure, but the expense of fixing the damage and helping the afflicted people has stoked worries that the nation may now go into default.
Ishaq Dar, the finance minister, said to Reuters last week that he would ask for a payment delay on some $27 billion in non-Paris Club debt, the majority of which is owing to China, but he would not pursue real write-offs.
Pakistan is slated to receive about $4 billion in post-flood help and loans from organisations like the World Bank and the United Nations as part of an International Monetary Fund (IMF) initiative.
But as things are, its $7.9 billion in foreign exchange reserves only lasts for around one month’s worth of essential imports.
Pakistan’s debt and fiscal dynamics “signal mounting solvency concerns,” according to a report published on Wednesday by analysts at JPMorgan.
“Political/fiscal, flood-related external risks, and possibility of a debt moratorium and their implications on the IMF programme as well as FX liquidity likely justify current sovereign bond prices.”
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