Pakistan braces for possible default as IMF bailout remains elusive

March 02, 2023 (MLN): Pakistan is facing a potential default on billions of dollars in debt repayments, as its economic crisis worsens and foreign reserves plummet. The country's dollar bonds have slid to their lowest level since November, while Moody's Investors Service has downgraded Pakistan deeper into junk territory, as reported by Bloomberg. 

The nation's external financing needs are estimated to be around $11 billion for the fiscal year ending June, including $7bn in external debt payments.

Pakistan's government is relying on a bailout loan from the International Monetary Fund (IMF) to stave off a default, but so far, an agreement has remained elusive.

Meanwhile, investors are bracing for the possibility of default, and bondholders are cutting exposure to Pakistan's debt.

According to Fitch Ratings, Pakistan faces $7bn in debt repayments in the coming months, including a Chinese loan of $2bn due in March. The rupee has also slumped 3.2% to 275 per dollar, while inflation has soared to a record high.

Despite the challenges, Pakistan's government is still seeking ways to raise funds. In February, the country secured a $700 million loan facility from China Development Bank, according to Finance Minister Ishaq Dar. Meanwhile, Premier Li Keqiang of China has told the head of the IMF that China is open to participating in multilateral efforts to help heavily indebted nations "in a constructive manner," according to China Central Television.

Some fund managers are taking a cautious approach to invest in Pakistan, given the risks involved. Johnny Chen, a fund manager at William Blair Investment in Singapore, said his firm has already cut exposure to Pakistan debt to manage risks.

Pakistan's Prime Minister Shehbaz Sharif has said that an agreement with the IMF could be reached within the next few days. However, with the nation facing mounting debt repayments and a worsening economic crisis, the road ahead remains uncertain.

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