ISLAMABAD: Pakistan’s finance minister Miftah Ismail on Friday tried to calm creditor fears and said the South Asian country would not seek any relief from commercial banks or Eurobond creditor, after Prime Minister Shehbaz Sharif requested wealthy countries for a “substantial debt relief.”
Pakistan’s bonds had slumped to just half their face value throughout the day after the Financial Times said a United Nations development agency was urging the cash-strapped country to restructure its debt.
Devastating floods have inundated large swathes of Pakistan since mid-June, killing more than 1,500 people and causing damages estimated at $30 billion, fanning fears that Pakistan would not meet its debts.
“Given the climate-induced disaster in Pakistan, we are seeking debt relief from bilateral Paris Club creditors,” Finance Minister Miftah Ismail said on Twitter on Friday.
“We are neither seeking, nor do we need, any relief from commercial banks or Eurobond creditors.”
The bond market reaction on Friday strengthened fears of another default by Pakistan, hammering its international market government debt.
One of the main sovereign bonds due for repayment in 2024 slumped more than 10 cents to about 50 cents on the dollar, while another due in 2027 fell to about 45 cents.
Ismail said the country had $1 billion bond due in December which it would “pay on time and in full.”
A memorandum the United Nations Development Programme (UNDP) is set to hand Pakistan’s government this week says its creditors should consider debt relief in the wake of the floods, according to the Financial Times.
The memorandum further proposed debt restructuring or swaps, in which creditors would forego some repayments in exchange for Pakistan’s agreement to invest in climate change-resilient infrastructure, the paper said.
PM Sharif appealed on Friday to rich nations for immediate debt relief, saying what had been done was commendable, but it was far from meeting the country’s needs.
The prime minister, who along with Ismail was in New York to attend the United Nations General Assembly (UNGA) session, told Bloomberg TV that Pakistan had taken up the debt relief issue with UN Secretary-General Antonio Guterres and world leaders.
“We have spoken to European leaders and other leaders to help us in Paris club, to get us a moratorium,” he said, referring to rich nation creditors.
Sharif and finance minister Ismail said they had also taken up the relief issue with the International Monetary Fund (IMF) and the World Bank.
Ismail said the IMF had “almost agreed” to the request for easing the conditions of Pakistan’s $7 billion program that was resumed in July after being delayed for months.
Of late, there have been concerns about Pakistan’s debt obligations and its declining foreign exchange reserves due to political uncertainty.
The floods have come at a time when the Pakistani rupee is on the verge of a record low. The economy is forecast to slow amid floods, policy tightening and efforts to tackle fiscal and external imbalances, according to the Asian Development Bank, which cut growth forecasts to 3.5 percent from 4.5 percent for the 2023 fiscal year this week.
