Pakistan’s debt burden could worsen, says Barclays.
The economic damage caused by the recent floods, the evolution of the political crisis, and growing doubts about the country’s ability to meet the goals of the International Monetary Fund (IMF) could make debt management more difficult, Barclays Bank said in its recent report.
In its “Pakistan: Plenty of Headwinds” report, the bank says it remains underweight in Pakistani government bonds and believes concerns over the large funding gap in fiscal 23 and outages due to energy and food shortages they will worsen an already difficult prospect.
Pakistani government bonds traded in the 1950s amid growing concerns about its external position and a developing political crisis.
As long as 🇵🇰 keeps borrowing money to repay its debts, its debt burden will grow. This strategy almost guarantees default – the only question is when it will occur?
More from @KhurramHusain on Pakistan’s debt crisis and the need for a new approach. 👇https://t.co/EOkMkAVgh6 pic.twitter.com/fDbK3hcv2q
— tabadlab (@tabadlab) July 7, 2023
The country faces a long list of problems: deteriorating current account, rising trade deficit, currency pressures and central bank interventions, rising cost pressures and record flood damage, the report said.
As Pakistan’s debt burden could worsen, the report says official and bilateral creditors owe a large part of the debt, which market participants expect to be rolled over in a timely manner.
However, this assumes that the IMF program remains on track.
“We think this view should be challenged as program targets appear to be supported by ambitious budget estimates that are subject to revision given domestic price pressures and political agendas. In addition to the risk of slippage and delays in the rollover of official/bilateral creditors, we estimate that Pakistan will face a funding shortfall of at least $6 billion in FY23,” the report said.
