Pakistan default risk surges
The spread between Pakistan's 10-year sovereign bond and similar- maturity U.S. Treasuries touched a oneyear high on Thursday.
If Pakistan's debt servicing costs rise, 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.
According to Bloomberg calculations 17 percent -- or $8.3 billion -- of Pakistan's 2016 debt repayments will need to be in foreign currency. This comprises $7.8 billion of loans, the bulk of which is a 2008 bilateral loan from the IMF that's due end-September and $500 million in bonds.
The external requirement accounts for 40 percent of the nation's $21 billion in foreignexchange holdings.
That stockpile, however, isn't airtight. While it increased by more than 55 percent last year -- the steepest rise in Asia -- more than half consists of debt and grants that could leave the country quickly if global risk appetite worsens.
Outflows would weaken the rupee, a currency that is estimated by the IMF to be as much as 20 percent overvalued even though it's proved remarkably stable amid the recent market turmoil.