Pakistan is at the risk of being declared as a default nation by credit default swap (CDS) based on its performance in five years.
During the Covid-19 outbreak, the CDS was just around 5% to 6% only. But it has gradually increased over time. Earlier this year, it also peaked rise at 30% when there was uncertainty revolving around revival of International Monetary Fund (IMF) programme.
However, lately it has been rising at a much higher pace, as the debt has been increasing and the returns are not being paid timely. Also, the foreign investors are losing their faith in Pakistan’s economy and they feel that Pakistan will not be able to repay the maturing debt.
Pakistan is due to return $1 billion to the foreign investors. The country’s foreign exchange reserves have also been depleting with only $9 billion left. This has created an alarming situation for Pakistan.
The foreign minister, Ishaq Dar has reassured the foreign investors that Pakistan will return the debt in December. “The return of $1 billion against the maturing Sukuk in December would help restore the foreign investors’ confidence in Pakistan. Accordingly, the CDS and yields on other bonds would come down,” Rauf said, who is the Research Head of Ismail Iqbal Securities.
