According to Morgan Stanley’s report released on Friday the outlook for Pakistan is worsening. The country has “underperformed significantly since February”, with spreads widening up to 1250 basis points and some bonds selling for as low as sixty cents on the dollar.
“The key driver has been rising concerns about Pakistan’s external funding gap” say the authors of the report. The deteriorating current account deficit, “increased risks to the IMF disbursements” and slowing remittances are principally responsible.
“We expect total funding need to be $35 billion for 2022” the report says. The current account deficit could widen to $17bn, and “predetermined drain on reserves” is $18bn. The authors consider external financing requirements under two scenarios: with and without and IMF program. “[I]n a better scenario, we estimate the available sources to be $32bn, assuming Pakistan will receive the next IMF tranches and issue Eurobonds successfully. This means a $3bn funding gap.”
This means even with a fund program and a successful Eurobond floatation, there will still be $3bn required to plug the financing gap in 2022.
