Pakistan does not face any risk of default, reiterates Ishaq Dar
- Finance minister says on his advice government made 'categorical decision' not to approach Paris Club for debt relief
Federal Minister for Finance and Revenue Ishaq Dar once again said that Pakistan does not face any default risk.
“There is no default risk, I would say that we have a zero percent default risk,” Dar said in an interview with a private channel on Wednesday night.
“I want to categorically state that Pakistan will not default and will make payments on time,” he said, adding that arrangements have been made for upcoming obligations.
He also said that on his advice the government made a “categorical decision” to not approach the Paris Club – an informal group of official creditors whose role is to help debtor countries – for debt relief.
“We will make bond payments on their date of maturity,” said Dar.
The statement comes as a sovereign Sukuk of $1 billion is due for repayment on December 5, 2022.
Pakistan’s perceived default risk worsens 'owing to IMF uncertainty'
Meanwhile, criticising opposition parties, Dar said that Pakistan’s economy should not be politicised.
Regarding talks with the International Monetary Fund (IMF), Dar said that the previous government hampered Pakistan’s credibility by reversing actions that had been agreed with the lender.
Currency volatility
On currency volatility, the finance minister restated that as per Real Effective Exchange Rate (REER), the value of US dollar against the rupee should be below 200.
But he said this is not the case “due to market speculation and a sense of nervousness and lack of confidence among the investors".
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“The rupee will re-strengthen and the dollar will weaken,” said Dar, without giving a timeline.
The minister said that unlike other countries Pakistan, does not have the resources to intervene in the market.
“Recently, interventions were seen in Bangladesh, and a number of treasury heads were removed and currency exchanges shut, whereas, India floated $98 billion to $99 billion in the market. However, we do not have that luxury."
Last week, in an effort to calm nerves, Dar said Pakistan will not default on its payments, and would meet its international obligations.
Dar said Pakistan’s international bonds are very small transactions, “and technically there should be no impact on them”.
Regarding the $1 billion sukuk, he said “Pakistan has never defaulted ... I want to categorically state that the bond will be paid, and there is no delay."
As per data provided by brokerage house Arif Habib Limited (AHL) last week, Pakistan's 5-Year credit default swap (CDS) increased from 5,620bps on November 14 to 7,550bps on November 15, an increase of 1,929.6bps.
A CDS is a financial derivative that allows an investor to swap or offset their credit risk with that of another investor. To swap the risk of default, the lender buys a CDS from another investor who agrees to reimburse them if the borrower defaults.
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