Pakistan’s woes justify falling bond prices: JPMorgan
This month, bonds fell to roughly 33-35 cents on the dollar or just a third of their face value.
Investment bank JPMorgan said Pakistan’s bonds’ decline to just one-third of face value was justified in light of the nation’s terrible floods and recent official warnings that certain debt payments could need to be suspended.
Pakistan’s debt and fiscal dynamics “signal mounting solvency concerns,” according to a note published on Wednesday by analysts at JPMorgan.
“Current sovereign bond prices are likely justified by political/fiscal, flood-related external risks, and potential of a debt moratorium – and their repercussions on the IMF program as well as FX liquidity.”
This month, the value of those bonds fell to around 33–35 cents on the dollar, leaving them at just a third of their face value and roughly in line with other nations that are seen to be at risk of default, like El Salvador, Ghana, and Ecuador.
In addition to laying out a “hypothetical” scenario in which payments on those international market notes, also known as Eurobonds, were delayed for two years, JPMorgan stated that “the market is undoubtedly pricing a risk of an external debt restructuring.”
By the end of 2024, the government would save a total of $7.5 billion under the scenario, which would also see a one-third cut in bond “coupons,” according to JPMorgan. However, they cautioned that China might not be open to accepting the same terms on its loans.
Thoughts are primarily focused on domestic debt.
Domestic debt makes for about two-thirds of Pakistan’s public debt portfolio, which is currently close to 80% of GDP, and nearly 90% of all interest payments are made domestically.
