A sovereign debt analyst who works at a UK-based global investment company, said, “the caretaker government is doing all the right things, but let’s see what happens when we have a real government. Therein lies the risk as the track record of Pakistani compliance under IMF programs is not great”.
Investors are sitting back until the country elects a new government highly tipped to strike an improved deal with the Washington-based lender in the coming months.
Another UK-based debt market analyst noted that Pakistan’s dollar bonds began 2024 strongly but volatility will likely stay high heading into elections (Thursday, February 8).
Meanwhile, a Singapore-based emerging-market sovereign analyst said there is still some upside to the potential of a smooth government transition followed by successful negotiations for a new IMF program. The lender’s support is critical to ensuring access to multilateral and bilateral funds to satisfy Islamabad’s external financing needs in the coming years.
Pakistani dollar-denominated maturities surged 9 percent in January which made the best-rated coupons in the world. This trend may take a break while the county votes on Thursday to elect a new government.
Notably, elections come at a time when Pakistan faces $25 billion in external debt payments next fiscal year, roughly three times its forex reserves. Pakistan has approximately $1 billion in dollar-denominated bonds due in April 2024. While markets have ruled out default on those maturities, the payment will hit Pakistan’s dollar reserves, which reached roughly $8.2 billion last month.
A recent Bloomberg survey revealed that the nation’s finances will collapse unless a new IMF bailout is achieved.