Home TRENDING PAKISTAN REPAYS $1 BILLION IN SUKUK & DISMISSES THE NOTION OF DEFAULT

PAKISTAN REPAYS $1 BILLION IN SUKUK & DISMISSES THE NOTION OF DEFAULT

Pakistan pays back $1 billion in Sukuk and denies any default.

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Pakistan pays back $1 billion in Sukuk and denies any default.
Three days earlier than expected, payment was received.

PHOTO: FILE

Pakistan has successfully made a repayment of $1 billion against a matured international Sukuk (Shariah-compliant bond) on Friday, December 2, three days ahead of schedule, dispelling the perception of its default on the payment. The event took place in Karachi.

Monday was the day that the nation was supposed to hand over the maturing investment in the global bond whose currency is denominated in US dollars, as stipulated by the actual schedule.

The State Bank of Pakistan (SBP) Spokesperson Abid Qamar confirmed to The Express Tribune that the payment of one billion dollars had been made. “Yes, we have made the payment,” he said.

The payment to Citigroup, which is responsible for transferring the funds to the investors, has been made by the bank.

Earlier, the risk of default, which was measured through a 5-year credit default swap (CDS), hit a record high of 123% last month. This was largely due to the strong perception that the country would be unable to arrange the payment due to its low foreign exchange reserves.

CDS is a type of insurance derivative that protects against the possibility of the repayment being missed. However, specialists said that this was a derivative that had poor liquidity and was traded in low volumes. A small amount of trading in CDS had contributed to an inaccurate impression of a default on the repayment.

It was reaffirmed by Pakistan’s current Finance Minister Ishaq Dar, its previous Finance Minister Miftah Ismail, and the Governor of the State Bank of Pakistan, Jameel Ahmad, that Pakistan would not default on any of its international payments and that it would make all payments as scheduled. In his commentary from the previous month, Ahmad stated, “It has more than the required foreign currency reserves.”

When Sri Lanka failed to make repayments on its global bonds earlier this year due to a decline in its reserves, this gave rise to the widespread belief that Pakistan would also likely default on its obligations. In addition to the political turmoil, the country was experiencing a severe lack of essential goods such as food, medicines, and petroleum products.

Read that Pakistan’s revenue plan fails to impress the International Monetary Fund.

An expert, contrasting the repayment capacities of Colombo and Islamabad, stated that Pakistan had only a small share (between 7 and 8 percent) of its total foreign debt through floating international bonds such as Eurobond and Sukuk. Colombo was the clear winner. The remainder of the country’s external debt consisted of commercial, multilateral, and bilateral obligations, all of which have the potential to be refinanced and have done so in the past.

On the other hand, more than half of Sri Lanka’s external debt was acquired through floating international bonds. These bonds cannot be refinanced, so repayment was required to keep the country from defaulting on its obligations.

Pakistan is currently participating in a loan programme with the International Monetary Fund (IMF) that is worth $6.5 billion and is essentially a guarantee against defaulting on its international payments.

Islamabad has successfully negotiated with international creditors to secure the necessary financing in the amount of $32-34 billion for the current fiscal year (July-June) 2022-23. This includes a debt of $21.1 billion, financing the current account deficit, and improvement in foreign exchange reserves. Additionally, this includes the total amount of the debt.

On Friday, the same day that Pakistan paid off the $1 billion debt, the State Bank of Pakistan (SBP) granted Saudi Arabia permission to extend the maturity date of its deposits totaling $3 billion in the country.

The Governor of the SBP, Ahmad, stated that they have made arrangements for additional foreign exchange, and as a result, the repayment of one billion dollars would not have an effect on foreign exchange reserves.

Due to the regular financing of the country’s current account deficit and the repayment of maturing debt, the country’s foreign exchange reserves have dwindled to an alarmingly low level of $7.5 billion at the present time. This level is considered to be precariously low. This doesn’t even come close to covering import costs for five or six weeks. Back in August 2021, 15 months ago, the reserves had totaled $20 billion at that point.

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