Markets prepare for possible default by Pakistan as $7 billion looms

Bondholders are bracing for a possible default by Pakistan as the crisis-hit nation faces billions of dollars in debt repayments, which it will struggle to make good without bailouts from the International Monetary Fund or rollovers from bilateral creditors.

The country’s dollar bonds fell to their lowest levels since November on Thursday, according to Fitch Ratings, as investors weigh their ability to honor $7 billion in repayments in coming months, including $2 billion due in March. Chinese debt is also included. The rupee fell 3.2% to 275 per dollar.

Pakistan was further downgraded to junk this week by Moody’s Investors Service as the country faces its worst economic crisis in decades, with foreign exchange reserves plunging and inflation hitting record highs. Authorities in Pakistan are counting on a bailout loan from the IMF to avert a default, which remains elusive.

Johnny Chen, fund manager at William Blair Investments in Singapore, who recently cut his exposure to Pakistani debt, said: “We are already managing the risks such that we are not impacted heavily if this happens. Needed.”


Pakistan’s 8.25% bond due in April next year was quoted 0.8 cents lower at 51.1 cents on the dollar, down for a third day in a row. Moody’s said in a note on Wednesday that the country’s external financing needs for the fiscal year ending June are estimated to be around $11 billion, including external debt payments of $7 billion.

Meanwhile, Finance Minister Ishaq Dar said that in February Pakistan received a $700 million line of credit from the China Development Bank. And, Premier Li Keqiang told the head of the IMF that China is open to participating in multilateral efforts to help heavily indebted countries in a “constructive way”, China Central Television reported.

Prime Minister Shehbaz Sharif said this week that a deal with the IMF could be reached in the next few days.

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