JPMorgan said that the prolonged decline in Pakistan’s dollar bonds is justified by the ravaging impact of the floods, warning that some debt payments may need to be suspended. The floods have added to Pakistan’s already existing troubled financial situation, costing the country about $10bn as per their planning minister. Recently, Pakistan said that it was looking to reschedule $27bn of bilateral debt with various non-Paris Club countries, of which Chinese debt is about $23bn. Pakistan added that it was not seeking to restructure debt from the Paris Club. Pakistan is currently in a program to receive around $4bn in post-flood aid and loans. Currently, with $7.9bn in forex reserves, the nation can barely cover one month of imports. JPMorgan’s analysts wrote, “Pakistan’s debt and fiscal dynamics flag rising solvency concerns… Political/fiscal, flood-related external risks, and possibility of a debt moratorium – and their implications on the IMF programme as well as FX liquidity – likely justify current sovereign bond prices… The market is certainly pricing a risk of an external debt restructuring”.
Pakistan’s dollar bonds are trading at around 32 cents on the dollar.
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