Singapore July 28 2022: The prospect of a default in Pakistan is not imminent as the nation is expected to have enough funds to cover its external financing gap this fiscal year, according to Natixis.
Pakistan is expected to secure a loan from the International Monetary Fund, and that, plus its foreign- exchange reserves will be enough to cover the estimated $500 million of external financing gap for the fiscal year 2023, says Junyu Tan, an economist at Natixis in Singapore.
The relatively small share of foreign bond repayment in FY2023 can also shield the nation from shifts in investor sentiment “Even though the likely wrap-up of for IMF deal can lead to some temporary rebound, political uncertainties, external financing risks and strengthening dollar will keep the Pakistan rupee under pressure in the near term”
The political uncertainties will persist into the general election as the coalition government is weak in power, but faces a hard balance between appeasing the public anger on inflation and meeting the IMF demand to remove fuel subsidy. This will put the prudent stance on fiscal policy vulnerable to election politics.
