Pakistan: Bonds Drop, Default Fears Amid Flooding

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Facts

  • On Friday, Pakistan's bonds dropped to half of their value after the UN reportedly urged the cash-deficient country to restructure its debt following fears of the economic impacts of recent flooding. Both the UN and Pakistan have blamed the flooding and subsequent economic crisis on climate change.
  • After floods devastated large swathes of the country this month, killing more than 1.5k people and causing damage estimated at $30B, worries grew over whether Pakistan would be able to repay its debts.
  • The UN memorandum reportedly encourages Pakistan to either restructure its debt or engage in swaps, in which creditors would forego repayments in exchange for the country investing in climate change-resilient infrastructure.
  • One of the main sovereign bonds due for repayment in 2024 slumped 9 cents to around 50 cents on the dollar, with another due in 2017 dropping to about 45 cents. Pakistan reportedly plans to seek relief from China, which owns roughly 30% of the country's total debt. However, the South Asian country says it won't seek relief from commercial banks or Eurobond creditors.
  • Pakistan also says it has been in talks with the EU and other nations, as well as the International Monetary Fund, which has "almost agreed" to ease its $7B program that resumed in July after being delayed for months.
  • The Pakistani government currently owes about $1B on maturing bonds that are due in December, which Finance Minister Miftah Ismail claims will be paid on time. It also has interest payments worth around $600M for the fiscal year 2022-23 due in April of 2024.

Sources: Reuters, Shore, Tribune, and Islamabad Post.

Narratives

  • Pro-establishment narrative, as provided by CNBC. Pakistan, which has one of the smallest carbon footprints, is being devastated by climate change. Recent floods have seen millions of people affected and billions of dollars lost, trapping the South Asian country in economic turmoil. Pakistan is literally paying the price for others' emissions.
  • Establishment-critical narrative, as provided by Gzero. Pakistan's economy is just one of the government's many failings amid the political turmoil that has paralyzed its governance. The South Asian country — which has a faltering tax regime, a weakening middle-class, and a shrinking education rate, to name a few — has abandoned all economic reforms and foolishly relied on bailouts, which will now do very little to solve this crisis.