Pakistan's default risk drops 93%, paving way for global market re-entry

December 18, 2024 (MLN): Pakistan's default risk has dropped by 93%, and the decline in country risk premiums presents a timely opportunity for Pakistan to plan its re-entry into global capital markets, particularly as global interest rates decline," said Mr Khurram Schehzad, Advisor to the Finance Minister.

Lower borrowing costs and increased liquidity will help alleviate external pressures further, thereby strengthening Pakistan's external position and boosting its economic prospects, he added.

Spread on Pakistan's CDS (Credit Default Swap)- insurance against credit default risk, has fallen to a low of 505 bps (5.05%) - even lower than some of the emerging and frontier markets, making a remarkable recovery of over 11,883 bps (11.89%).

Pakistan's 5-year CDS spread has dropped from 12,388 bps in Nov 2022, indicating a significant reduction in default risk.

He was of the view that improved debt management, boosted foreign reserves, and fiscal discipline have restored market confidence in Pakistan's ability to meet its sovereign obligations. 

As investor confidence soars, Pakistan's global bonds have been rallying, making creditors increasingly optimistic about Pakistan's financial health.

With its improved credit profile and favorable market conditions, Pakistan is now well-positioned to capitalize on this opportunity and attract credit and investment flows.

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