Foreign investors fear steep losses as Pakistan enters another crisis

Pakistan: Global bond managers are staring at a debt default by the Pakistan government. These fears come on the back of the political crisis racking the country.Last week, the former Prime Minister of Pakistan Imran Khan was arrested by police on corruption charges. His arrest triggered riots in major Pakistani towns; the rioters even attacked Army establishments in cantonments. For long, Imran Khan has been demanding that the Pakistan Army stay away from the political process. He also wants early elections in the country.

This stand-off between Khan and his political foes has contributed significantly to the Rupee’s depreciation. According to reports, the Pakistani Rupee is one of the worst-performing currencies in the market. At the time of filing this report, Pakistan’s national currency was trading between 285 -290 to one USD and has declined more than 20% over the recent months. This is worrying foreign investors immensely.

Economic crisis looms large

Pakistan’s economic crisis isn’t recent in its making. The country has been in economic turmoil for many reasons and has approached the International Monetary Fund for a bailout. However, the IMF has imposed several conditions on the Pakistan Government, one of them being the depreciation of the rupee. The government agreed to these conditions and raised the prices of several articles, including fuel. But this step has caused widespread anger in the country.
Khan’s arrest last week and the resultant political upheaval have further delayed the bailout package. Generally, there is an inverse relationship between political volatility and foreign investor activity.

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Risking a default

Over the years, Pakistan has accumulated significant debt to tide over its economic crisis. It needs to start repaying its loans from July 2023 onwards. However, many experts feel that Pakistan might default on its loan payments due to its long-standing economic crisis and this may erode bond yields.

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