Pakistan 'absolutely not' to default on debt despite floods, finance minister says

Pakistan ‘absolutely not’ to default on debt despite floods, finance minister says

ISLAMABAD: Pakistan will “absolutely not” default on its debt despite catastrophic floods, the finance minister said Sunday, signaling there would be no major backtracking on reforms to stabilize the economy.

The floods have affected 33 million Pakistanis, caused billions of dollars in damage and killed more than 1,500 people, raising fears that Pakistan will not pay its debts.

“The path to stability has been narrow given the challenging environment and it has gotten even narrower,” Finance Minister Miftah Ismail told Reuters in his office.

“But if we continue to make prudent decisions – and we will – then we will not default. Absolutely not.”

Pakistan was able to get the International Monetary Fund (IMF) program back on track after several months of delay thanks to tough political decisions. But the positivity was short-lived before catastrophic downpours hit.

Despite the catastrophe, Ismail said most of the stabilization policies and goals are still being met, including an increase in depleting foreign exchange reserves.

Central bank reserves stand at $8.6 billion, despite an influx of $1.12 billion in IMF financing at the end of August, enough for just a month of imports. The goal at the end of the year was to increase the buffer to 2.2 months.

He said Pakistan would still be able to build up to $4 billion in reserves even if the floods hurt the current account by $4 billion due to increased imports such as cotton and negatively impact exports.

However, he estimates that the current account deficit will not increase by more than $2 billion after the flood.

“Yes, the poorest people have suffered significant losses, and their lives will never be full. But in terms of servicing our external and local debt, as well as micro and macro economic stability, these things are under control.”


He said world markets are “nervous” about Pakistan, given that the economy has suffered at least $18 billion in losses since the floods, which could rise to $30 billion.

“Yes, our risk of default on the loan has risen, our bond prices have fallen. But… I think within 15-20 days the market will normalize and I think we will understand that Pakistan is trying to be prudent.”

Pakistan’s next big payment – $1 billion in international bonds – is due in December, and Ismail said the payment would “absolutely” be met.

On Sunday, the IMF said it would work with the international community to support Pakistan’s relief and recovery efforts, as well as efforts to build resilience and stability.

Ismail said external funding sources have been secured, including more than $4 billion from the Asian Development Bank (ADB), the Asian Infrastructure Investment Bank and the World Bank.

This includes $1.5 billion next month from ADB under the Countercyclical Support Facility, a budget support tool.

The minister also said that investments from Qatar, the UAE and Saudi Arabia in the current financial year will be made in the amount of about $5 billion.

The three announced their interest in investing in Pakistan earlier this year, but no timeline or exact plans have been announced yet.

He said the $1 billion UAE investment “will definitely materialize” in the next couple of months in the form of purchases on the Pakistani stock market.

He added that during the fiscal year until June 2023, Qatar’s investment commitments of around $3 billion will be announced.

“They are considering a long-term lease of three airports in Pakistan, Karachi, Lahore and Islamabad. They are also considering buying two LNG (liquefied natural gas) plants… likely to happen this calendar year,” he said.

He said that if the $3 billion figure was not reached by the close of the fiscal year, the rest would go to the stock market.

He also said the Saudi crown prince had assured Prime Minister Shehbaz Sharif that Riyadh would invest $1 billion by December.

The Central Bank of Pakistan announced on Sunday that the Saudi Arabian Development Authority has also extended by one year a $3 billion deposit due in December.

He said that a legal document would soon be signed with a “friendly country” providing for a deferral of $1 billion in oil payments.

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