KARACHI: The country’s default risk as measured by five-year credit-default swaps (CDS) — insurance contracts that protect an investor against a default — rose sharply overnight amid political turmoil and uncertainty about talks with the International Monetary Fund (IMF).

The CDS soared to 75.5 per cent on Wednesday from 56.2pc a day ago, according to data provided by research firm Arif Habib Limited.

Official sources in Washington said last week the schedule for talks between Pakistan and the IMF had been readjusted, but the negotiations are continuing. Media reports, however, claimed that the talks that were scheduled to begin in early November had been postponed until the third week of this month.

According to these reports, the talks would resume after Pakistan fulfilled its pledge to adjust sales tax on petroleum products and took other measures required under a loan agreement revived earlier this year.

Pakistan’s five-year credit default swap rises sharply to 75.5pc from 56.2pc a day ago

But official sources, who spoke to Dawn, had said the talks were rescheduled after last month’s release of a World Bank report on flood damages in Pakistan.

Pakistan is scheduled to pay $1 billion on Dec 5 against the maturity of five-year sukuk, or Islamic bonds. The finance minister has repeatedly assured for sukuk payment, but the international market is not ready to rely on assurances as the country’s economy struggles to avoid default by borrowing more from the markets, donors, commercial banks and friendly countries.

The day-to-day increase in the CDS reflects a grave situation, making it increasingly difficult for the government to raise foreign exchange from markets either through bonds or commercial borrowings.

The country requires $32bn to $34bn this fiscal year to meet its foreign obligations.

Financial experts said the country still needed about $23bn through the remaining fiscal year.

Pakistan is still in the IMF programme, which enables it to get inflows from the World Bank, Asian Development Bank and Asian Infrastructure Investment Bank.

Pakistan had promised the IMF to bring down the fiscal deficit by Rs1,500bn in the current fiscal year, but the situation is worsening as the deficit expanded in the first quarter.

The financial sector said the Fund was demanding new taxes to increase liquidity and avoid fiscal deficit expansion.

The government requires at least Rs800bn, which is only possible through new taxes, something that can be difficult for the government amid a faltering economy and political unrest.

Govt exceeds borrowing target

The government raised Rs757bn through treasury bills against the target of Rs650bn on Wednesday.

The only change was noted in the 12-month tenor, whose cut-off yield saw a drop of four basis points. The total bids for the auction amounted to Rs1.247 trillion.

Published in Dawn, November 17th, 2022