Pakistan’s central bank tries to quell default rumoursSeptember 4th, 2008 - 7:41 pm ICT by IANS
Karachi, Sep 4 (DPA) Pakistan’s central bank Thursday said it was working closely with the government to restore economic stability amid rising rumours that the country might default soon on loans from its international creditors.”The federal government and the central bank are working in tandem to restore macroeconomic stability,” Shamshad Akhter, governor of State Bank of Pakistan, said in an unscheduled statement.
Akhter blamed the prolonged political instability and rising international fuel and commodities prices for the country’s financial difficulties.
Pakistan has around $45 billion in foreign debts, including around $16 billion of bilateral and market loans, which are rumoured to be facing the biggest risk of default.
On the London Stock Exchange, the country’s sovereign debt has become the riskiest in the world, surpassing Argentina. Here the insurance premiums for Pakistani debt, called Credit Default Swaps (CDS), have skyrocketed to $950,000 for each $10-million loan against $788,000 for Argentina.
“This shows the international investors are already contemplating a default-like scenario,” Mohammad Sabir, economist at the Social Policy Development Centre said.
Meanwhile, Akhter said the government had decided to selectively sell its assets to meet “the financing gap.”
The governor also said negotiations were going on a fast-track basis with multilateral financial agencies to secure financing, including $500 million from the Asian Development Bank and $1 billion from the World Bank.
In a separate development, the central bank Thursday also revealed new foreign exchange reserve figures, depicting a further loss of over $200 million from last week to $ 9.1 billion.
But analysts say the situation was far more alarming, noting that the actual reserves are at a dangerously low $4 billion, barely enough to sustain one month of imports.
They accuse the central bank of providing a wrong picture by showing around $3.3 billion of private foreign currency deposits as part of its hard currency reserves.
Analysts also said an additional $1.5 billion have already been booked by importers for covering imports for September and October.
“This leaves hardly $4 billion in actual reserves, or just one month of imports,” said an analyst at a foreign bank.
Last time Pakistan faced a similar situation was in late 1999 when an emergency debt payment rescheduling through the International Monetary Fund (IMF) stabilization programme saved the country from bankruptcy.
Later, billions of dollars of anti-terrorism aid after the Sep 11, 2001 attacks in United States boosted both the economy and reserves.