Pak­istan de­fault risk surges

The Pak Banker - - COMPANIES/BOSS -

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.

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