The Pak Banker - - FRONT PAGE -

Bets are ris­ing that Pak­istan will de­fault on its debt just as it starts to re­vive in­vestor in­ter­est with a re­duc­tion in ter­ror­ist at­tacks. Credit de­fault swaps pro­tect­ing the na­tion's debt against non-pay­ment for five years surged 56 ba­sis points last week amid the global mar­ket sell- off, the steep­est jump af­ter Greece, Venezuela and Por­tu­gal among more than 50 sov­er­eigns tracked by Bloomberg.

About 42 per­cent of Pak­istan's out­stand­ing debt is due to ma­ture in 2016 -- roughly $50 bil­lion, equiv­a­lent to the size of Slove­nia's econ­omy. The bulk of that is in lo­cal cur­rency.

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 per- cent, 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.

Right now, he said, there's not much rea­son to panic. Pak­istan's ex­ter­nal li­a­bil­i­ties are "rel­a­tively mod­est," for­eign-cur­rency re­serves have risen, the IMF is ready to help meet ma­tur­ing loans and Chi­nese in­vest­ment in an eco­nomic cor­ri­dor is on its way, Tang said.

"Im­prov­ing growth prospects, lower in­fla­tion and smaller bud­get deficit should help to un­der­pin in­vestor con­fi­dence, par­tic­u­larly the do­mes­tic in­vestor base," Tang said. Pak­istan has just $4 bil­lion of ex­ter­nal debt com­ing due in 2016 and "does not face any dif­fi­culty in re­spect of its debt ser­vic­ing obli­ga­tions," the Fi­nance Min­istry said on Mon­day in an e-mailed re­sponse to ques­tions. The govern­ment doesn't "feel any cause for con­cern with re­gards to re­fi­nanc­ing its do­mes­tic debt," it said.

Pub­lic debt risk in­di­ca­tors have come down over the past two years, while the CDS is on a down­ward tra­jec­tory com­pared with 2008, the Fi­nance Min­istry said. Pak­istan has a medium risk of de­fault over five years, ac­cord­ing to Bloomberg as­sess­ments.

Pak­istan is com­mit­ted to suc­cess­fully im­ple­ment its IMF macroe­co­nomic sta­bil­ity pro­gram, the Fi­nance Min­istry said in a state­ment Feb. 1. Sharif's ad­min­is­tra­tion has a "quite good" chance of com­plet­ing the pro­gram, IMF mis­sion chief Har­ald Fin­ger said last month.

Since Sharif took the IMF 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 Corp. The bulk of this year's debt, some $30 bil­lion, is due be­tween July and Septem­ber, and re­pay­ments will get tougher if bor­row­ing costs rise more.

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