Pakistan fears default over report on UN debt suspension notice

A man, displaced by floods, wades through floodwaters to fill canisters, following rains and floods during the monsoon season in Sehwan, Pakistan September 20, 2022. REUTERS/Stringer/File Photo

Sept 23 (Reuters) – Pakistani bonds fell to half their face value on Friday after the Financial Times said a United Nations development agency was urging the cash-strapped country to restructure its debt.

Devastating floods have engulfed large swathes of Pakistan this month, killing more than 1,500 people and causing damage estimated at $30 billion, stoking fears that Pakistan is failing to repay its debts. Read more

According to the Financial Times, a memorandum the United Nations Development Program (UNDP) is due to deliver to the Pakistani government this week says its creditors should consider debt relief following the floods.

The memorandum further proposed debt restructuring or swaps, in which creditors would forego certain repayments in exchange for Pakistan’s agreement to invest in climate-resilient infrastructure, according to the newspaper.

Neither the foreign affairs office in Islamabad nor a UNDP spokesperson in Pakistan immediately responded to Reuters’ request for comment on the memorandum. The country’s finance and information ministers could also not be reached.

The bond market’s reaction on Friday heightened fears of another Pakistani default, hammering its public debt on the international market.

One of the major sovereign bonds due in 2024 fell more than 10 cents to around 50 cents on the dollar, while another due in 2027 fell to around 45 cents. .

Pakistani Finance Minister Miftah Ismail said in an interview with Reuters earlier this week that there was no chance of credit default risk.

The government must pay $1 billion on bonds maturing in December. It has interest payments worth around $0.6 billion for the 2022-23 fiscal year, but the next full bond repayment won’t occur until April 2024.

DEBT RELIEF

Prime Minister Shehbaz Sharif on Friday called on the world and wealthy countries for immediate debt relief, saying what had been done was commendable, but adding: “It falls far short of meeting our needs.”

Sharif, who with Ismail is in New York to attend the United Nations General Assembly, told Bloomberg TV that Pakistan has discussed debt relief with UN Secretary General Antonio Guterres and world leaders.

“We spoke to European leaders and other leaders to help us in the Paris club, to get us a moratorium,” he said, referring to rich country creditors.

Sharif and Finance Minister Ismail said they had also taken up the issue of aid with the International Monetary Fund and the World Bank.

Ismail said the IMF had “almost accepted” the request to ease the conditions of Pakistan’s $7 billion program which resumed in July after being delayed for months.

“They almost said yes,” he told local Pakistani television Dunya News in New York a day after Sharif met with the IMF managing director.

The IMF representative in Islamabad did not respond to a request for comment.

The country of 220 million could not stand on its own, Sharif added, “unless we get substantial relief”.

He said Pakistan would also seek relief from longtime ally China, to which it owes about 30% of its external debt.

The Pakistani government and António Guterres attributed the floods to climate change.

Reporting by Asif Shahzad and Gibran Peshimam in Islamabad, Marc Jones in London, Jyoti Narayan in Bengaluru and Charlotte Greenfield in Kabul; Written by Gibran Peshimam; Editing by Sam Holmes, Clarence Fernandez and Susan Fenton

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