This year was bad weather for Sri Lanka’s economic collapse as well as sovereign default. Currently, the world’s attention goes to Pakistan. The country urges to challenge reforms to avoid a similar fate with Sri Lanka. So far, the country’s rate is B3/B-/B-. It is actually stable since its first sovereign default in 1999. Pakistan plans to rebuild its financial institutions as well as its reputation.
However, the situation gets worse as political instability remains. It contributes to the current inflation that wreaked havoc recently. Their program with the International Monetary Fund is also in danger. Last April, the country removed Imran Khan, former cricketer, from his post of prime minister. Pakistan’s sovereign debt has reached $20bn. The payments due are going to be on June 30 2023. However, it is still unsure whether the country is able to pay it.
Apparently, the country’s FX reserves jumped from $17bn to $10bn. The major causes were from the debt repayments and capital outflows. A director for Asia Pacific sovereign ratings at Fitch, Jeremy Zook, argued that the government’s ability to make the repayments create more doubt as they have reached agreement with the IMF. If the review gets the approval, it means that they should bring at least $1bn of financing. Then, it could boost other multilateral financing too.
Currently, just like Sri Lanka before, Pakistan has requested an increase from $6bn to $8bn on the current IMF programme. They have also demanded an extension from September when the due expiry should be in June next year. If the country could win the IMF agreement, the inflation could cool off. Moreover, the State Bank of Pakistan has hiked policy rates for as much as 675bp last September.
