The governor of the State Bank of Pakistan (SBP) played down growing international concern that Pakistan could not be able to pay its maturing international debt obligations.
SBP Governor Jameel Ahmed said, “Let me tell you that we will be honoring all our debt obligations on schedule and there should be no anxiety about that,” speaking to the Pakistan Stock Exchange (PSX) on Thursday.
Moody’s Investors Service and Fitch Ratings, two prominent international credit rating agencies, recently downgraded Pakistan’s credit rating due to concerns that the nation’s ability to repay its debts has weakened in the wake of the devastating floods, which caused the domestic economy to suffer losses of over $30 billion.
“Recently, the Asian Development Bank (ADB) loaned Pakistan $1.5 billion. The Asian Infrastructure Investment Bank (AIIB) and other multilateral and bilateral organizations are also expected to make more contributions soon, according to Ahmed.
He stated that “these inflows not only assist in meeting our debt obligations but also strengthen our foreign exchange reserves.”
On August 29, 2022, the International Monetary Fund (IMF) combined its seventh and eighth reviews of the economy and restarted its $6.5 billion loan program for Pakistan, he remembered.
The country’s foreign exchange reserves are predicted to increase by 20% to a three-month high of roughly $9 billion with the receipt of ADB inflows of $1.5 billion, rebounding from the 40-month low hit at $7.6 billion on October 14, 2022.
Earlier this week, Pakistan’s risk of default, as determined by a 5-year credit default swap (CDS), surged to a 13-year high of 52.8%, up from less than 10% before the Covid-19 outbreak in Pakistan in February 2020.
The historical surge in the risk of default reflected the growing concerns of global investors on the timely re-payment of maturing debt.
Global investors have bought bonds (Eurobond and Sukuk) issued by Pakistan that are denominated in US dollars. On December 5, 2022, the nation is obligated to repay $1 billion against a maturing Sukuk.
Both current Finance Minister Ishaq Dar and his predecessor Miftah Ismail repeatedly guaranteed foreign investors that the nation would pay back its debt when the time came.
Since being chosen for a five-year term in August of 2022, this was the SBP governor’s first appearance in front of the public. Ahmed came to the stock exchange to publicly introduce Roshan Equity Investing (REI), an online trading and investment platform made available to Pakistanis living abroad via Roshan Digital Accounts (RDAs) banking.
The governor reported that over 10,000 non-resident Pakistanis from all over the world had so far invested $35 million (Rs7.8 billion) in equities of companies listed on the PSX.
He said, “Investments into the conventional and Shariah-compliant Naya Pakistan certificates through RDA were at $1.7 billion and $1.6 billion respectively, while investment via RDA into the stock exchange has been rather muted, amounting to only about $35 million.
“Over 484,000 RDAs have been opened by non-resident Pakistanis from 175 countries across the world. The total inflows from these RDAs stand at around $5.28 billion,” he commented. “The launch of the Roshan Equity Investment (at the PSX) was made at an opportune time,” he said, adding that PSX’s market capitalization to GDP stands at 10%, which is low as compared to that of regional countries. PSX Chief Operating Officer, Nadir Rahman said that the “stock market is working with the central bank to enable retail investors to invest and trade in lucrative sovereign debt securities like treasury bills (T-bills) and Pakistan Investment Bonds (PIBs) through PSX.”
“The opportunity of investing in debt securities has been available at PSX since 2004. However, this is too difficult for retail investors to take a position on, at present,” he added.
