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Is Pakistan Facing Default Crisis?


Reuters reported that Pakistan's bonds had slumped to just half their face value on September 23 after the Financial Times indicated that a United Nations development agency was urging the cash-strapped country to restructure its debt.


The floods which have killed over 1600 people with damage estimated at $ 30 billion is an indicator that the country maybe unable to meet the debts and would default.


Reuters reported that a main sovereign bond to be repaid in 2024 has slumped over 10 cents to about 50 cents on the dollar, and another to about 45 cents.


At his address during the 77th session of the United Nation's General Assembly in New York, United States, Pakistan Prime Minister Shahbaz Sharif highlighted the damage caused by the devastating floods blaming the developed countries for the climate crisis while at the same time seeking assistance.


While lauding global response to the flood devastation in Pakistan as “commendable” in an interview with Bloomberg TV, the premier outlined the challenges the country will continued to face in the economic field


IMF EFF Programme


In August, International Monetary Fund’s (IMF) executive board approved the revival of Pakistan’s Extended Fund Facility (EFF) programme, Finance Minister Miftah Ismail reported. “Alhamdolillah the IMF Board has approved the revival of our EFF program. We should now be getting the 7th & 8th tranche of $1.17 billion,” he tweeted.


Daily Times reported that PM Shehbaz commended the finance minister, his team, and other stakeholders for their hard work. “The formal resumption of an IMF program is a major step forward in our efforts to put Pakistan’s economy back on track. It is outcome of an excellent team effort,” the premier said.


The IMF will now immediately disburse about $1.2 billion to Pakistan and may provide up to $4 billion over the remainder of the current fiscal year, which began on July 1. This comes after coalition government accused the PTI of “attempting to jeaopardise the IMF loan programme” after the Khyber Pakhtunkhwa government allegedly refused to implement the terms of the Fund’s agreement in a letter.


In the wake of the controversy, Federal Finance Minister Miftah Ismail asked Khyber Pakhtunkhwa Finance Minister Taimur Khan Jhagra to resign and PTI Senator Shaukat Tarin to quit politics for trying to sabotage Pakistan’s interests after audio leaks of their conversation regarding the resumption of the IMF programme surfaced.


The Chief of Army Staff General Qamar Javed Bajwa, reportedly spoke on the IMF loan programme with Saudi Arabia’s and United Arab Emirates’ authorities. General Bajwa reportedly pleaded with Washington to assist Islamabad in obtaining an early distribution of $1.2 billion in funds under the IMF programme to reduce the risk of defaulting on debt.


Saudi Arabia plans to renew its $3 billion deposit in assistance to Pakistan, as the South Asian nation looks to rein in one of Asia’s highest inflation rates and stave off a current-account crisis, according to people familiar with the matter.


The Saudi Finance Ministry plans to renew its $3 billion deposit with State Bank of Pakistan as a gap funding before IMF disburses relief. The commitment by Saudi Arabia was confirmed to Pakistan Foreign Minister Bilawal Zardari Bhutto.


Pakistan’s Benefactors


Unlike Sri Lanka however, Pakistan has many benefactors who are willing to bridge any funding gap. China, Saudi Arabia and the UAE have assisted Pakistan to shore up the economy from time to time.


These have been repeatedly bailing out the nuclear weapons state which has faced a financial crisis many times over with the most recent one resulting in a call for IMF bailout.

The financial crisis has also led to a run on Pakistan Rupee sinking to new lows each day. Whether the usual benefactors will come to the rescue of Mr Sharif and Pakistan now remains to be seen?


Conclusion



The UN General Assembly has provided Pakistan’s Prime Minister Shehbaz Sharif an opportunity to highlight the plight of this country after the devastating floods and a stage for an urgent appeal for debt relief from rich nations, reminding them that the country is paying the price for their greed and the damage caused to the climate.


The Pakistani premier has highlighted the gap between what Pakistan is asking for and what is available, warning that the nation is facing the imminent threat of epidemics and other dangers.


He has also spoken to the World Bank about immediate debt relief and would begin talks with China after the Paris Club. Pakistan owes $30 billion to China, or about a third of its total external debt.


Sharif has even reached out to Russian President Vladimir Putin about the availability of gas and oil and Putin has promised him that he will most definitely look into this.

So how the multiple outreach for relief plays out remains to be seen even as there are concerns of the administration having failed to reach out to the needy.

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