Pakistan’s default risk spikes reach a new high of 64.2%

On Monday, the five-year currency default swap (CDS) index for Pakistan increased 4.2 percentage points to a new high of 64.2%, indicating that the nation lacked the resources to make the increasing import payments and timely repayments of its foreign debt.

Pakistan is expected to pay back $1 billion in relation to a five-year Sukuk (a bond that complies with Shariah) that would mature on December 5, 2022.

According to Topline Research, the yield (rate of return) on the Sukuk increased by 964 basis points in a single day to 69.96%. Investors may be concerned that the nation may not be able to repay the $1 billion Sukuk, according to the jump in yield.

State Bank of Pakistan (SBP) Governor Jameel Ahmad, however, clarified during the day that the country had foreign exchange reserves of “over $9 billion, which are more than enough” to pay for imports and repay foreign debt.

Following Pakistan's announcement that Saudi Crown Prince Mohammad bin Salman had postponed his visit to Islamabad and that a new date would be revealed soon, the five-year CDS displayed a high probability of default.

Over $10 billion in investments were anticipated to be announced by the crown prince during his visit. Pakistan's foreign exchange reserves would have increased as a result of the expected inflows.