According to Bloomberg, Pakistan risks default as 42 percent of its foreign debt, around $50 billion, is due in 2016. The report said around $30 billion is due between July and September, of which $8.3 billion will need to be in foreign currency, depleting 40pc of the nation’s $21 billion in foreign-exchange holdings.
The report acknowledges that Prime Minister Nawaz Sharif has worked to make Pakistan more investor-friendly since winning a $6.6 billion International Monetary Fund loan in 2013 to avert an external payments crisis. “The economy is forecast to grow 4.5 percent, an eight-year high, as a crackdown on militant strongholds helps reduce deaths from terrorist attacks.”
“Pakistan’s high level of public debt, with a large portion financed through short-term instruments, does make the sovereign’s ability to meet their financing needs more sensitive to market conditions,” Mervyn Tang, lead analyst for Pakistan at Fitch Ratings Ltd., said by e-mail.
Pakistan has the 10th highest political risk score among more than 120 countries in the Economist Intelligence Unit ranking, worse than Egypt and Iran.
Since Sharif took the loan, Pakistan’s debt due by end-2016 has jumped about 79 percent. He’s also facing resistance in meeting IMF demands to privatize state-owned companies, leading to a strike this month at national carrier Pakistan International Airlines.
The spread between Pakistan’s 10-year sovereign bond and similar-maturity U.S. Treasuries touched a one-year high on Thursday.
If Pakistan’s debt servicing costs rise, PM Sharif doesn’t have much room to maneuver. Already about 77 percent of the country’s 13 trillion rupees ($124 billion) budget for the year through June 30 is earmarked for interest and principal repayment on loans.