ISLAMABAD: Pakistan will “absolutely not” default on its bonds despite catastrophic floods, the finance minister said on Sunday, signaling that there would be no major deviation from reforms aimed at stabilizing an economy in difficulty.
The floods have affected 33 million Pakistanis, inflicted billions of dollars in damage and killed more than 1,500 people, raising fears that Pakistan is defaulting on its debts.
“The path to stability was narrow, given the difficult environment, and it has become even narrower,” Finance Minister Miftah Ismail said. Reuters at her office.
“But if we continue to make prudent decisions – and we will – then we’re not going to default. Absolutely not.”
Pakistan was able to get an International Monetary Fund (IMF) program back on track after months of delay, thanks to tough policy decisions. But the positive feeling was short-lived before the catastrophic rains arrived.
Despite the disaster, Ismail said most stabilization policies and goals were still on track, including boosting dwindling foreign exchange reserves.
Central bank reserves stand at $8.6 billion, despite the influx of $1.12 billion in IMF financing at the end of August, which is only enough for about a month of imports. The year-end target was to increase the buffer to 2.2 months.
The path to stability was narrow, given the harsh environment, and it has become even narrower. But if we continue to make prudent decisions – and we will – then we’re not going to default. Absolutely not: Finance Minister Miftah Ismail
He said Pakistan would still be able to increase its reserves up to $4 billion, even if the floods hurt the current account balance by $4 billion in additional imports, such as cotton, and had a negative impact on exports.
However, he estimated that the current account deficit will not increase by more than $2 billion as a result of the floods.
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“Yes, there have been substantial losses for the poorest people and their lives will never be restored. But in terms of servicing our external and local debt, and micro-macro-economic stability, these things are under control. .”
December payment to be respected
He said global markets were “nervous” about Pakistan, given that the economy had suffered at least $18 billion in losses from the floods, which could reach $30 billion.
“Yes, our credit default risk has gone up, our bond prices have gone down. But…I think in 15-20 days the market will normalize, and I think they will understand that Pakistan pledged to be careful.”
Pakistan’s next big payment – $1 billion in international bonds – is due in December, and Ismail said the payment would “absolutely” be honoured.
The IMF said Sunday it will work with the international community to support Pakistan’s relief and reconstruction efforts and efforts to ensure sustainability and stability.
Ismail said external funding sources were secured, including more than $4 billion from the Asian Development Bank (ADB), the Asian Infrastructure Investment Bank and the World Bank.
IMF to support Pakistan flood relief and reconstruction efforts ‘under current programme’
This includes $1.5 billion next month from the AfDB under the Countercyclical Support Facility – a budget support instrument.
The minister also said about $5 billion in investments from Qatar, the United Arab Emirates and Saudi Arabia would materialize in the current fiscal year.
The three announced their interest in investing in Pakistan earlier this year, but no specific timetable or plan has yet been announced.
He said a $1 billion investment in the UAE would “definitely materialize” over the next two months in the form of purchases on the Pakistani stock market.
Some $3 billion in Qatari investment pledges will all come in the financial year to June 2023, he added.
“They’re looking at the three airports in Pakistan, Karachi, Lahore and Islamabad… long-term leases. They’re also looking at buying two plants that run on LNG (liquefied natural gas)… the ones that I think will probably make it happen this year. civil,” he said.
He said that if the $3 billion figure was not reached by the end of the financial year, the remaining amount would go to the stock market.
He also said the Crown Prince of Saudi Arabia had assured Prime Minister Shehbaz Sharif that Riyadh would invest $1 billion by December.
The Central Bank of Pakistan announced on Sunday that the Saudi Development Authority had also extended a $3 billion deposit by one year, which will mature in December.
He said a legal instrument would soon be signed with a “friendly country” to activate a $1 billion deferred payment facility for oil.