Pakistan, along with a handful of emerging nations that are facing skyrocketing refinancing demands could run into financial troubles next year as a result of the combination of persistently high interest rates and lackluster global growth.
Aid from global and bilateral lenders helped several vulnerable economies weather the aftermath of the COVID-19 pandemic and the conflict in Ukraine.
Repayments on high-yield international bonds issued by developing countries will exceed $30 billion in 2024, a significant increase from the $8.4 billion still due this year. If some issuers can’t refinance their debt promptly, this adds a layer of complexity for more susceptible countries.
Pakistan in hot water with debt crisis
Nevertheless, according to Thys Louw, portfolio manager for the emerging markets hard currency debt strategy at Ninety One in London, nations like Pakistan, Tunisia, and Kenya “would need to find alternate sources of financing if the market did not re-open for them.”
According to Merveille Paja, BofA’s EEMEA sovereign credit strategist, investors worry about refinancing risks associated with Kenya’s $2 billion bond due in June 2024.
According to Paja’s comments to Reuters, “the market expects more remedies to be delivered, either the IMF’s resilience and sustainability trust or $1 billion external issue or syndicated loan.”
Approved a year ago, the resilience and sustainability trust is a lending mechanism for low-income and certain middle-income nations to prepare for climate change and pandemics.
The completion of the IMF program will be crucial in preventing a default in Pakistan and Tunisia, as it will allow for the release of bilateral and multilateral assistance. Pakistan’s refinancing requirements for 2024 represent 12% of its foreign reserves.
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