Pakistan has to pay one billion dollars’ worth of Eurobonds on the 5th of December next month, issued five years ago to borrow from the international market. Therefore, there is Bankruptcy speculation began. These speculations were fueled by Pakistan’s credit-debit swap (CDS) widening in the international market. Financial research agencies and individuals in Pakistan have termed the increase in CDS dangerous. They expressed concerns about Pakistan’s default, but the government of Pakistan rejected the risk of the country defaulting.
In a press conference a few days ago, the Federal Finance Minister rejected the reports that Pakistan is in danger of defaulting. After the progress of a massive increase in the CDS of Pakistani bonds in the international market, the report of the currency crisis faced by Pakistan by the Japanese bank Nomura came out, and the bank placed Pakistan on the list of the seven countries that are suffering from severe currency crises. Regarding the increase in CDS and the currency crisis faced by Pakistan, the country’s economic and financial affairs experts comment that the country is currently facing a severe financial crisis and that economic conditions are rapidly deteriorating. However, experts rule out the possibility of defaulting on the payment of a one-billion-dollar Eurobond next month. Still, after that, Pakistan may face difficulties repaying more debt, as the country currently needs more financial assistance from anywhere. Due to the non-availability of loans, foreign exchange reserves are depleting rapidly.
Can Pakistan go bankrupt?
Regarding the news of Pakistan’s default, Minister of State Dr. Ayesha Ghosh Pasha told the National Assembly recently that there is no such risk and Pakistan can meet its international payments. Federal Finance Minister Ishaq Dar also announced the payment of a billion-dollar bond next month and said that Pakistan would not go bankrupt.
In this regard, Dr. Hafeez Pasha said that Pakistan would pay one billion dollars next month. Still, the situation after that is hazardous, and Pakistan may be close to bankruptcy. He said that Pakistan’s international credit rating had gone down, and the country was not even getting dollars from outside, which worsened the situation. He said there was no immediate risk of Pakistan defaulting. Still, the risk may increase in the coming months as the country is not getting any significant funds from anywhere to balance its external payments. Economist Amar Khan also ruled out the possibility of Pakistan defaulting. He said that Pakistan would quickly pay the one billion dollar Eurobond, and there was still plenty of time for the next payment.
He said that the increase in the insurance premium, i.e., CDS, of Pakistani bonds in the international market and the possibility of default were taken wrongly. He said this is purely a technical matter and cannot be linked to bankruptcy. Ali Khizr, a financial expert, said the CDS had risen, leading to reports that Pakistan could default on its payments, but there was no immediate risk for next month’s payments.
What is the currency crisis facing Pakistan?
On behalf of the Japanese bank “Nomura,” Pakistan has been placed on the list of the seven countries worldwide that are currently suffering from a dangerous currency crisis. These countries include Romania, Egypt, Sri Lanka, Turkey, the Czech Republic, Hungary, and Pakistan. As per the exercise done by the Bank of Japan, a country’s foreign exchange reserves, exchange rate, financial condition, and interest rate were used as the basis for this. According to the bank, a score of more than 100 means that a country is facing a currency crisis of up to 64%, and Pakistan’s score was 120. Dr. Hafeez Pasha said that according to this report, the list of countries in which Pakistan was placed shows how bad the economic conditions of Pakistan have become.
He said that Pakistan’s credit rating had gone down, and if dollars were not coming in from outside, it would affect our foreign exchange reserves and exchange rate. Pakistan’s currency is currently trading at 223 to the US dollar, with a little more than $13 billion in foreign exchange reserves and less than $8 billion in central bank reserves. According to Amar Khan, there are many reasons for the currency crisis in Pakistan. There is a shortage of dollars in the country at the moment. Domestic imports are high while exports have been stagnant, so more dollars are flowing out through foreign trade, and fewer dollars are coming into the country. He also said that this hurts the exchange rate in Pakistan, so the value of the rupee has gone down.
How will the currency crisis affect the average Pakistani?
Speaking about the severe currency crisis facing Pakistan and its impact on the ordinary Pakistani, Ali Khizr said it would negatively impact the ordinary person. He said that the currency crisis, when the rupee’s value is low, affects income and savings. He said that a Pakistani’s income and savings are in rupees, and when the rupees price falls, income necessarily falls, and savings also shrink.
According to him, the currency crisis increases inflation for the average Pakistani. Pakistan is dependent on imports for its energy and food needs and needs dollars. A strong dollar will make these imports more expensive, which means that oil and food items will become more expensive for the average citizen. He said that if this currency crisis continues and the price of one dollar goes above 250 rupees, it will significantly increase the rate of inflation.
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