Pakistan does not face any risk of default, reiterates Ishaq Dar
Federal Minister for Finance and Revenue Ishaq Dar once again said that Pakistan does not face any default risk. "There is no default risk, I would say that we have a zero percent default risk," Dar said in an interview with a private channel on Wednesday night. "I want to categorically state that Pakistan will not default and will make payments on time," he said, adding that arrangements have been made for upcoming obligations.
He also said that on his advice the government made a "categorical decision" to not approach the Paris Club an informal group of official creditors whose role is to help debtor countries for debt relief. "We will make bond payments on their date of maturity," said Dar. The statement comes as a sovereign Sukuk of $1 billion is due for repayment on December 5, 2022.
Meanwhile, criticising opposition parties, Dar said that Pakistan's economy should not be politicised. Regarding talks with the International Monetary Fund (IMF), Dar said that the previous government hampered Pakistan's credibility by reversing actions that had been agreed with the lender.
On currency volatility, the finance minister restated that as per Real Effective
Exchange Rate (REER), the value of US dollar against the rupee should be below 200. But he said this is not the case "due to market speculation and a sense of nervousness and lack of confidence among the investors". "The rupee will re-strengthen and the dollar will weaken," said Dar, without giving a timeline.
The minister said that unlike other countries Pakistan, does not have the resources to intervene in the market. "Recently, interventions were seen in Bangladesh, and a number of treasury heads were removed and currency exchanges shut, whereas, India floated $98 billion to $99 billion in the market. However, we do not have that luxury."
Last week, in an effort to calm nerves, Dar said Pakistan will not default on its payments, and would meet its international obligations. Dar said Pakistan's international bonds are very small transactions, "and technically there should be no impact on them".
Regarding the $1 billion sukuk, he said "Pakistan has never defaulted ... I want to categorically state that the bond will be paid, and there is no delay." As per data provided by brokerage house Arif Habib Limited (AHL) last week, Pakistan's 5-Year credit default swap (CDS) increased from 5,620bps on November 14 to 7,550bps on November 15, an increase of 1,929.6bps. A CDS is a financial derivative that allows an investor to swap or offset their credit risk with that of another investor. To swap the risk of default, the lender buys a CDS from another investor who agrees to reimburse them if the borrower defaults.
Earlier, Nomura has warned that seven countries - Egypt, Romania, Sri Lanka, Turkey, Czech Republic, Pakistan and Hungary - are now at a high risk of currency crises. The Japanese bank said that 22 of the 32 countries covered by its in-house "Damocles" warning system have seen their risk rise since its last update since May, with the largest increases in the Czech Republic and Brazil. It meant the sum of the scores generated on all 32 by the model had increased sharply to 2,234 from 1,744 since May.
"This is the highest total score since July 1999 and not too far from the peak of 2,692 during the height of the Asian crisis," Nomura economists said, calling it "an ominous warning sign of the growing broad-based risk in EM currencies".
The model crunches 8 key indicators on a country's FX reserves, exchange rate, financial health and interest rates to give an overall score. Based on data from 61 different EM currency crises since 1996, Nomura estimates that a score above 100 indicates a 64% chance of a currency crisis in the following 12 months.