Pakistan’s credit default risk down 28 percent, stands second globally: Bloomberg

Business Desk :

Pakistan has witnessed one of the sharpest drops in sovereign default risks and stands second worldwide based on Credit Default Swap-implied probability, citing data from Bloomberg.

A Credit Default Swap-implied probability is the market’s forward-looking estimate of the probability of a borrower defaulting on their debt as derived from the spread of their Credit Default Swap (CDS) contract.

The South Asian country is second only to Turkiye in the Emerging Market (EM) rankings, recording 22 percent reduction in default risk over the last 15 months from June 24 till September 25, the country’s finance adviser said last week referring data from Bloomberg, reports The Arab News.
Crucially, this is not a rally driven by short-term optimism.

Pakistan’s drop in default risk is sharper than South Africa, Egypt, and Colombia. Unlike the occasional rebound many emerging markets witness, Pakistan’s improvement is sustained, broad-based, and, most importantly, being priced into institutional models.

“Default probability down by a massive 2,200 basis points,” Schehzad said on X. “Pakistan is the only country in the EM sample showing consistent quarterly improvement across the past year.”

The development comes as the South Asian country navigates a long path to economic recovery under a $7 billion International Monetary Fund (IMF) program.

Schehzad said this sharp decline in country’s default risk resulted from macroeconomic stability, structural economic reforms, timely debt servicing, staying the course with the IMF program, and positive ratings actions from global agencies such as S&P, Fitch and Moody’s.

“Message to investors: Pakistan is steadily rebuilding market credibility, standing out as one of the most improved sovereign credit stories in the emerging market universe,” he added.

Pakistan faced a prolonged economic crisis over the last few years, marked by critically low foreign exchange reserves, an acute balance-of-payment crisis, and the looming risk of default in 2023.

The crisis was averted after the IMF released a crucial loan tranche, while support from friendly countries, including China, the United Arab Emirates, and Saudi Arabia, also played a key role.