Pakistan is at risk of default

[Indos]

All three conditions have been endured before.



And Pakistan is not any of the countries mentioned. Clearly.

Reform because of eminent threat =

 

[Dalit]

Crying over split milk. This had been predicted before PDM came to power. Everyone is now repeating a broken record.

There were people who were cheerleading for PDM. PDM broke Pakistani economy in a matter of months. It is too late and opportunistic to cry now.

 

[Burger_King]

Allow me to get slightly technical here.

Debt is the reality of international financial system. Pretty much every single country in the world relies on debt to finance a part of its expenditure. This includes rich countries like Saudi and Qatar and poor countries like Pakistan. Countries borrow in domestic currency for example PKR and in foreign currency for example USD. Borrowing in PKR is not an issue because Pakistan can print as many PKR as it wants. Problem arises when country needs USD since foreign country cannot print USD. How much interest a country pays on USD debt depends on credit worthiness illustrated in part by credit rating.

Pakistan had market access to USD funding until one year back when IK's government was in place. Exactly one year ago, Pakistan raised USD1bn from foreign investors among whom were blue-chip names like Blackrock and Vanguard. Investors got a return of 7.95% p.a as compensation for lending USD1bn to Pak which will have to be paid back in 2029 (see below). Currently yield on this bond is 20% and bond trades with a price of USD60. Issue price was 100. Investors have lost around 32% which is a catastrophic amount and wont lend money to Pak until price goes to 90.

When Pak borrows money from foreign investors like Blackrock, the country makes promises that policies will be implemented which will protect lender's investment. Investors like what they heard from IK's team and opened up the purse strings. But then regime change happened and all hell broke lose. Investors, have long memories and are diligent with their investment otherwise they lose their jobs. They don't rely analysis churned out by second division BComm majors that pass for financial analysts in Pak

More importantly, investors have long memory and Sharifs cant buy or threaten them or let loose Porno Naani on them. They recognise Dollar Dar for the quack he is and ran for the hills once they saw his shadow in the background. Result is that unlike most countries on Earth, Pak cannot refinance its USD debt which is another name for default. Consequence of default will be much worse than COVID as prices will rise exponentially as country will not be able to import essential items like food and medicne.

Western publications have been running hit pieces on IK like they do on any muslim politician that acts independently (see my last post which highlights warmongering lust of The Economists with target being muslim countries. Article on IK fullfils the same function. That Pakistanis cannot counter modern threats are the main reason for their suffering.

 

[_NOBODY_]

LOL. Nope. that is just a perception on part of a certain demographic, that is all.

Which demographic? Urban upper middle class?

 

[Dalit]

Allow me to get slightly technical here.

Debt is the reality of international financial system. Pretty much every single country in the world relies on debt to finance a part of its expenditure. This includes rich countries like Saudi and Qatar and poor countries like Pakistan. Countries borrow in domestic currency for example PKR and in foreign currency for example USD. Borrowing in PKR is not an issue because Pakistan can print as many PKR as it wants. Problem arises when country needs USD since foreign country cannot print USD. How much interest a country pays on USD debt depends on credit worthiness illustrated in part by credit rating.

Pakistan had market access to USD funding until one year back when IK's government was in place. Exactly one year ago, Pakistan raised USD1bn from foreign investors among whom were blue-chip names like Blackrock and Vanguard. Investors got a return of 7.95% p.a as compensation for lending USD1bn to Pak which will have to be paid back in 2029 (see below). Currently yield on this bond is 20% and bond trades with a price of USD60. Issue price was 100. Investors have lost around 32% which is a catastrophic amount and wont lend money to Pak until price goes to 90.

When Pak borrows money from foreign investors like Blackrock, the country makes promises that policies will be implemented which will protect lender's investment. Investors like what they heard from IK's team and opened up the purse strings. But then regime change happened and then all hell broke lose. Investors, have long memories and are diligent with their investment otherwise they lose their jobs. They don't rely analysis churned out by second division BComm majors that pass for financial analysts in Pak

More importantly, investors have long memory and Sharifs cant buy or threaten them or let loose Porno Naani on them. They know dollar dar for the quack he is and ran for the hills. Result is that unlike most countries on Earth, Pak cannot refinance its USD debt which is another name for default. Consequence of default will be much worse than COVID as prices big jump in prices as country will not be able to import essential items like food and medicne.

Western publications have been running hit pieces on IK like they do on any muslim politician that acts independently (see my last post which highlights warmongering lusts of Economists with target being muslim countries. Article on IK fullfils the same function. That Pakistanis cannot counter modern threats are the main reason for their suffering.

One thing has to be said, the lenders haven't come forward despite Western support for regime change in Pakistan. I guess this regime change was planned with economic default in mind. Even the traditional allies are sick and tired of the debt history related to Pakistan.

 

[Indos]

 

[Ali_Baba]

I will reveal one other thing that's being discussed behind the scenes and it's the demand for the military to open its business conglomerate books and privatize it.

Agree - sell off the Fauji companies and use the proceeds to pay off some of the debts - they caused all this mess Pakistan is in. Time they payed for it.

 

[Indos]

Reform because of eminent threat =

Maybe this crisis which is actually started due to The Fed tightening policy and Russian invasion are actually a good bitter pil for Pakistan to change and reform ?

I believe there are already changed mind in Pakistan leadership. Getting to the bottom is actually a good bitter pill to start the reform. It did happen to Indonesia in 1997-1998....

 

[Burger_King]

Western backers have not helped Pakistan because that would defeat the purpose of RCO.

Goal is to weaken Pakistan and not to help it stand on its feet. The bigger screw up is lack of support provided by GCC and by Chinese. I think word has gone around that Pak is supplying weapons to Ukraine and no one wants to help a country acting as a frontman for war-lusting anglo saxon elite.

 

[VCheng]

Reform because of eminent threat =

Which threat is being referred to here and how has its eminence been determined please?

Which demographic? Urban upper middle class?

A "certain" demographic is all that I can say for now. I hope you understand.

 

[epebble]

One thing has to be said, the lenders haven't come forward despite Western support for regime change in Pakistan. I guess this regime change was planned with economic default in mind. Even the traditional allies are sick and tired of the debt history related to Pakistan.

The fact that no 'Western support' to prop up the regime has materialized should put a lie to the 'regime change' absurdity. Usually, 'regime change', if done, will be to remove undesirable regime and put a desirable regime and support it. Replacing the regime and throwing the new regime into trash can doesn't make any sense even to a conspiratorial mind. It is like you replaced your old phone or TV because you are unhappy with it, got a new one and threw it into thrash.

 

[Dalit]

The fact that no 'Western support' to prop up the regime has materialized should put a lie to the 'regime change' absurdity. Usually, 'regime change', if done, will be to remove undesirable regime and put a desirable regime and support it. Replacing the regime and throwing the new regime into trash can doesn't make any sense even to a conspiratorial mind. It is like you replaced your old phone or TV because you are unhappy with it, got a new one and threw it into thrash.

This is a non-discussion. The Americans and Brits have never ever hidden their dislike for Imran Khan. The way the Pakistani army and US/Britain are suddenly engaging with each other is also no secret. Not so long ago, the entire Western bandwagon was scolding and accusing the Pakistani army for every ill in the world. This change of heart is obviously by design and also cosmetic.

 

[epebble]

This is a non-discussion. The Americans and Brits have never ever hidden their dislike for Imran Khan. The way the Pakistani army and US/Britain are suddenly engaging with each other is also no secret. Not so long ago, the entire Western bandwagon was scolding and accusing the Pakistani army for every ills in the world. This change of heart is by design.

Due to the long history of politics of Pakistan, most of the world including western nations, held civilian governments in low esteem and did whatever business with the military, grudgingly or otherwise. This again argues against 'regime change' because why go through the hassle of changing the wallpaper when the walls are same?

 

[SeaMermaid]

Between debt and the deep blue sea

FOR each of the next five years, Pakistan owes the world $25 billion in principal repayments. It will also need at least $10 billion to finance the current account deficit, bringing total external...

www.thenews.com.pk

FOR each of the next five years, Pakistan owes the world $25 billion in principal repayments. It will also need at least $10 billion to finance the current account deficit, bringing total external financing needs to $35 billion a year between now and 2027. We have foreign exchange reserves of just $3 billion. For each of the next five years, the government needs to pay 5 percent of GDP to service the debt it owes to residents and foreigners. Our total tax take is only 10 percent of GDP.

Let both those facts sink in. And then quickly realise that the Centre cannot hold. For starters, there is no way we can meet our external financing needs without incurring more government debt. This is because, unlike proper emerging markets, we do not attract any meaningful FDI and our private sector does not generate inflows from abroad. However, at 78 percent of GDP, our government debt is already approaching levels considered excessive for an emerging market. As a result, borrowing abroad at a reasonable cost is getting increasingly difficult and the overhang from this debt is weighing on domestic investment, which remains stuck at 15 percent of GDP. Equally, there is no way the government can devote half its tax take to debt servicing and have enough left over to meet other critical expenses, including public wages and pensions, investment, social spending, and defence.

We could, of course, delude ourselves that everything will work out fine and try to kick the can down the road. We can pretend that we will magically grow our exports, remittances and taxes overnight while shrinking our imports and spending. In their desperation for a bail-out and to avoid admitting past mistakes on debt accumulation, there is real danger that this is what our policy makers will agree with the IMF this week. But that would be a recipe for disaster. It has not worked anywhere else in the world and it will not work in Pakistan. It would impose unbearable austerity on an antagonised population already laid low by a major cost of living crisis and political dysfunction. It would be foolish and reckless. It could spark a major social revolt.

Instead, it would be far better to call a spade a spade and accept that government debt in Pakistan is no longer sustainable. So where would this admission leave us? Our airwaves are currently dominated by a false choice between default and paying all our debts on time, even at the cost of endless austerity. But there is a third option. It involves pre-emptively restructuring our government debt, in a way that immediately and adequately frees up resources to be deployed to cushion the current slowdown and implement much needed structural reforms. We would not miss any debt repayment (the definition of a default) but would renegotiate the terms of our existing debt with our creditors such that these repayments become less onerous. While this could take some time and may lead to arrears, the IMF and financial markets would be forgiving as long as these negotiations were being conducted in good faith and would help to make our debt sustainable again.

Let us consider how this might work. My thoughts below have benefited from the excellent omnibus “Sovereign Debt: A Guide for Economists and Practitioners” edited by my friend Ali Abbas, a debt expert at the IMF. Today, Pakistan’s domestic government debt is around 50 percent of GDP and mainly held by our banks. At the same time, Pakistan’s external government debt stands at around 28 percent of GDP or $100 billion. Around fourth-fifths of this external debt is owed to the official sector, split roughly evenly between multilaterals (like the IMF, World Bank and ADB) and bilaterals (countries like China, Saudi Arabia and the United States). The remaining one-fifth is commercial, again roughly evenly split between Eurobond/Sukuk issuances and borrowing from Chinese and Middle Eastern banks. By region, we owe roughly one-third of our external debt to China and 10 percent to the old-boys network of the Paris Club, which includes Europe and the US.

In considering how a debt restructuring can be implemented, there are always two key considerations. First, which creditors to include. Second, how to distribute the debt relief evenly across these creditors, including whether to impose a haircut (a cut in the nominal value of the debt) or a lighter re-profiling (a lengthening of maturities, with no change in the principal or interest payments).

With regard to the first consideration, a key issue will be whether to include domestic debt. While it is external debt that is most difficult for us to service since it requires foreign exchange, we could create much more fiscal space by including domestic debt in the restructuring effort. This is tricky, as it would involve domestic banks and could risk their balance sheets if done in too cavalier a fashion. Moreover, the burden of domestic debt can also be reduced by alternative means, including by maintaining low interest rates, inflating it away, and imposing additional taxes on the banking sector. That said, if we do choose to go down this route, there are successful precedents, including Jamaica (2010, 2013) and Uruguay (2003). As discussed in Ali’s book, these were largely voluntary debt exchanges, featuring diverse strategies including haircuts, reductions in coupons and maturity extensions. Indeed, judging from the position that China has taken in other ongoing debt restructuring efforts, we may need to include domestic debt. Beyond this, there will also be pressure to include all external creditors. On the official side, the IMF will be excluded due to its senior creditor nature. However, others like the World Bank and Asian Development Bank have a more murky status and could be pushed to at least roll-over debt service falling due to them and possibly even provide additional long-term concessional funds, as part of a comprehensive debt renegotiation with all of Pakistan’s external creditors.

Next, our $20 billion of commercial debt would need to be addressed through either haircuts or re-profiling. These negotiations can take longer but the ability to convene creditor committees and invoke “collective action clauses” mean that they no longer can be dragged out indefinitely. Without including private debt in the debt restructuring, official bilateral creditors will never come on-board. But once they do, it is heartening to note that official bilateral debt has been frequently restructured across the world, with the Paris Club often accepting larger haircuts than that imposed on private creditors.

The major issue on the official bilateral side will be how to convince China to join the effort. As a newcomer to the debt game, China is still learning the ropes. To date, it has remained wary of both existing Western-dominated mechanisms for official debt restructuring like the Paris Club, as well as fall-out at home from being perceived as having made bad loans in its extensive lending operations around the world. But it is imperative for China to show global leadership at this critical juncture. As explained above, bringing domestic debt and multilaterals into a comprehensive operation may help coax China to join the overall debt restructuring effort.

In addition, given Pakistan’s special relationship with the Chinese, diplomatic channels can also be leveraged beyond purely economic and technocratic discussions. If all else fails, in order to address China’s concerns related to confidentiality and creating a precedent for other indebted countries, a side deal could be cut with China alone without the need to involve other creditors. Provided the operation is ambitious enough, this could work on its own given that almost one-third of our external debt is owed to China. So there you have it. For such a debt restructuring to work, the government will need to be proactive and hire professional services. Done well, it could be a game-changer for Pakistan, freeing up vital financing space in the order of $30-40 billion over the next 2-3 years and preventing mindless austerity. Delayed or executed poorly, it could backfire. The stakes are high and the hour is getting late.

Former acting governor of State Bank of Pakistan
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Qatar agrees to buy OGDCL, PPL shares

ISLAMABAD: Qatar has reportedly agreed to consider Pakistan’s offer to buy shares/ stakes of Oil and Gas...

www.brecorder.com

ISLAMABAD: Qatar has reportedly agreed to consider Pakistan’s offer to buy shares/ stakes of Oil and Gas Development Company Limited (OGDCL) and Pakistan Petroleum Limited (PPL) and sell Mirage-2000 fighter aircrafts to Pakistan.
@epebble @Lava820 @migflug

 

[Olympus81]

Election’s won’t happen any time soon. Mark my words.

Even if IK comes back by a miracle, the overseas Pakistanis wont trust the state. It’s a given. If there is political stability for a few years, only then things will start to improve.

My guess is, elections will be delayed, IK will be assassinated / disqualified by you know who, PMLN will come to the helm, IMF deal will happen, while Pakistan gradually goes down, but will survive, with establishment continue with their habitual political engineering (because its fun). And then few years down the line a violent revolution.