Islamabad: Inflation is touching the sky. Fighting over fuel prices. Broken political climate. for months, Pakistan It has struggled to keep its economy afloat, raising the possibility that one of the world’s most populous nations could soon follow Sri Lanka in a wave of potential global defaults.
Investors are getting worried. Without a bailout from the International Monetary Fund, Pakistan could default for the second time in its history. As the meeting with the IMF ended on Wednesday in Doha, officials acknowledged that winning a loan from the multilateral lender could involve trade-offs, including the politically difficult decision to raise fuel prices.
“We are confident that we will reach the finish line,” Murtaza Syed, the acting governor of the State Bank of Pakistan, said in an interview with Bloomberg TV on Tuesday.
The talks come at a time when citizens are battling Asia’s second-fastest inflation and ousted prime minister Imran Khan Ready to capture the nation’s capital with his supporters to conduct early elections. With financial shocks caused by the pandemic, Russia’s war in Ukraine and rising interest rates, Pakistan is one of several emerging economies facing debt restructuring.
Pakistan is demanding the release of $3 billion from the IMF. The amount would increase the country’s foreign exchange reserves, which cover less than two months’ worth of imports, to $10.2 billion. The government is looking at a trade deficit of $45 billion this year. Last week, international bonds fell to record-low levels due in 2031.
“Pakistan is in a tight position,” said Lars Jacob Krabbe, portfolio manager for Frontier Markets Fixed Income at Koli Frontier Markets AB in Stockholm.
The fight between the government and former Prime Minister Khan has complicated the road ahead with the IMF. In recent weeks, Khan’s party, the Pakistan Tehreek-e-Insaf, has insisted on holding elections a year ahead of plans to retake power. And Khan called on his supporters to hold a protest in Islamabad on Wednesday.
The city is ready for unrest. Police have put up barricades in front of so-called red zones, neighborhoods containing major government buildings, including parliament, embassies and prime minister’s offices. The government has said demonstrations will not be allowed, raising concerns that more devastation and social unrest may follow.
An important point for the IMF pertains to Khan’s tenure. Before leaving office in April, he slashed fuel and gasoline prices and then froze them for four months, a final attempt to improve his image among voters and assuage frustration over rising costs.
But the IMF has delayed giving more money to Pakistan until the government abolishes fuel subsidies. and Khan’s successor, Shahbaz SharifPrice hikes have been deferred despite a subsidy of $600 million a month. The government has already resisted the anger of a population struggling to afford staples such as wheat and sugar.
“Three weeks ago, I would have said Pakistan has a 0% chance of becoming the next Sri Lanka,” said Mattias Martinsson, chief investment officer at Tundra Fonder AB in Stockholm. However, the inaction of the new government is worrying.
For now, at least, Pakistani officials say they are confident of finding a middle ground with the IMF, even if the subsidies remain.
In a Bloomberg TV interview, Syed said “the gap is being closed.” He expressed optimism that the IMF money would enable the country to fill the funding gap easily by the end of the next financial year. Apart from reviving the rescue package from 2019, Pakistan is seeking an additional $2 billion from the IMF.
Edwin Gutierrez, head of emerging-market sovereign debt at London-based Aberdon Plc, which owns Pakistan’s bonds, said the company is comfortable with some volatility and does not plan to sell its holdings.
“Given the politics, it will be a rocky road, but in the end neither Pakistan nor the IMF will be far away,” he said.
Investors are getting worried. Without a bailout from the International Monetary Fund, Pakistan could default for the second time in its history. As the meeting with the IMF ended on Wednesday in Doha, officials acknowledged that winning a loan from the multilateral lender could involve trade-offs, including the politically difficult decision to raise fuel prices.
“We are confident that we will reach the finish line,” Murtaza Syed, the acting governor of the State Bank of Pakistan, said in an interview with Bloomberg TV on Tuesday.
The talks come at a time when citizens are battling Asia’s second-fastest inflation and ousted prime minister Imran Khan Ready to capture the nation’s capital with his supporters to conduct early elections. With financial shocks caused by the pandemic, Russia’s war in Ukraine and rising interest rates, Pakistan is one of several emerging economies facing debt restructuring.
Pakistan is demanding the release of $3 billion from the IMF. The amount would increase the country’s foreign exchange reserves, which cover less than two months’ worth of imports, to $10.2 billion. The government is looking at a trade deficit of $45 billion this year. Last week, international bonds fell to record-low levels due in 2031.
“Pakistan is in a tight position,” said Lars Jacob Krabbe, portfolio manager for Frontier Markets Fixed Income at Koli Frontier Markets AB in Stockholm.
The fight between the government and former Prime Minister Khan has complicated the road ahead with the IMF. In recent weeks, Khan’s party, the Pakistan Tehreek-e-Insaf, has insisted on holding elections a year ahead of plans to retake power. And Khan called on his supporters to hold a protest in Islamabad on Wednesday.
The city is ready for unrest. Police have put up barricades in front of so-called red zones, neighborhoods containing major government buildings, including parliament, embassies and prime minister’s offices. The government has said demonstrations will not be allowed, raising concerns that more devastation and social unrest may follow.
An important point for the IMF pertains to Khan’s tenure. Before leaving office in April, he slashed fuel and gasoline prices and then froze them for four months, a final attempt to improve his image among voters and assuage frustration over rising costs.
But the IMF has delayed giving more money to Pakistan until the government abolishes fuel subsidies. and Khan’s successor, Shahbaz SharifPrice hikes have been deferred despite a subsidy of $600 million a month. The government has already resisted the anger of a population struggling to afford staples such as wheat and sugar.
“Three weeks ago, I would have said Pakistan has a 0% chance of becoming the next Sri Lanka,” said Mattias Martinsson, chief investment officer at Tundra Fonder AB in Stockholm. However, the inaction of the new government is worrying.
For now, at least, Pakistani officials say they are confident of finding a middle ground with the IMF, even if the subsidies remain.
In a Bloomberg TV interview, Syed said “the gap is being closed.” He expressed optimism that the IMF money would enable the country to fill the funding gap easily by the end of the next financial year. Apart from reviving the rescue package from 2019, Pakistan is seeking an additional $2 billion from the IMF.
Edwin Gutierrez, head of emerging-market sovereign debt at London-based Aberdon Plc, which owns Pakistan’s bonds, said the company is comfortable with some volatility and does not plan to sell its holdings.
“Given the politics, it will be a rocky road, but in the end neither Pakistan nor the IMF will be far away,” he said.