Despite challenges, Pakistan to avert default: report

Despite facing one of the worst economic challenges in decades and a continuous delay in resumption of the International Monetary Fund (IMF) programme, some economic experts remain confident that Pakistan would avert a likely default.

“Contrary to the pessimistic sentiment, we think Pakistan will not default on its sovereign debt,” said Ali Farid Khwaja, Chairman KTrade, a brokerage house, in a report titled KTrade Strategy Report: We are Bullish on Pakistan.

The report was of the view that Pakistan’s commercial debt obligations are very low - $3 billion due over the next 12 months. “We think this can be managed by careful management of the current account balance and by support of friendly countries,” the report noted.

“We think Pakistan will be able to raise these funds from friendly countries, such as Saudi Arabia and China,” it added.

The remarks come as Pakistan and the IMF remain in talks for the resumption of the multi-billion dollar programme, which has been stalled since November last year.

Meanwhile, KTrade was of the view that Pakistan could have maintained compliance with IMF’s plan conditionality much earlier, had it not been for “deliberate missteps taken for short term political benefits”.

“Similarly, the investment flows from friendly countries could have materialized earlier if there was no political instability. This is why we believe that domestic politics has been the main culprit for the economic woes,” it said.

However, “the recent progress shows that the government still has sufficient controls and access to tools, which can be used to manage the crisis,” it said.

KTrade said that the recent government measures taken to control the current account are not long-term fixes.

Federal budget on June 9: Govt will fulfil all external obligations: Dar

However, “we think that they would be sufficient to manage the liquidity problem. This will give time to the government for finalizing investment terms with countries, such as UAE, Qatar, and most importantly, with China and Saudi Arabia,” it added.

Last week, brokerage house Arif Habib Limited in a report titled ‘Pakistan Economy: What if Pakistan defaults?’ expressed concern that Pakistan’s default risk has risen considerably amid lack of breakthrough with the IMF.

“Given support from friendly countries is often tied to IMF’s tacit approval, a lack of breakthrough with the fund would make sovereign default a very high probability. While our base case assumption is that Pakistan will avert default by remaining engaged with the IMF along with support from major bilateral creditors, sovereign default nonetheless remains a real possibility,” AHL said.