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Pakistan will ‘absolutely not’ default on debts despite floods, finance minister says

Islamabad: Despite devastating floods, Pakistan will “never” default on its debt, the finance minister said on Sunday, suggesting no major deviations from reforms designed to stabilize the struggling economy did.

The floods have affected 33 million Pakistanis, damaged billions of dollars and killed more than 1,500 people, raising fears that Pakistan will be unable to meet its debts.

“Given the difficult environment, the path to stability has been narrow and is getting narrower,” Finance Minister Mikhta Ismail told Reuters in his office.

“But if you continue to make prudent decisions, you will never default. Never.”

Pakistan has been able to get its International Monetary Fund (IMF) program back on track after months of delays, thanks to tough policy decisions. But the positive feelings were short-lived before a devastating downpour.

Despite the disaster, Ismail said most stabilization policies and goals are still on track, including increasing the declining foreign exchange reserves.

Central bank reserves are at $8.6 billion, but the IMF inflow of $1.12 billion in late August is enough for about a month’s worth of imports. Our end-of-year goal was to increase the buffer to a maximum of 2.2 months.

He said Pakistan could still increase its reserves to $4 billion even if the floods hurt the current account by $4 billion in more imports such as cotton and negatively impacted exports. .

However, he estimates that the current account deficit will not increase by more than $2 billion after the floods.

“Certainly, the poorest have suffered considerable losses and their livelihoods will never be the same again. In terms of being there, these things are under control.”

December payment is met

He said global markets were “upset” for Pakistan given that the economy suffered losses of at least $18 billion after the floods and could reach $30 billion.

“Yes, the risk of credit defaults has risen and bond prices have fallen. But…within 15 to 20 days the market will normalize and understand that Pakistan has promised to be cautious. Let’s go

Pakistan’s next big payment – a $1 billion international bond – is due in December, and Ismail said the payment would “absolutely” be met.

The IMF said on Sunday that it will work with the international community to support Pakistan’s relief and reconstruction efforts, as well as efforts to ensure sustainability and stability.

Ismail said external sources of funding have been secured, including more than $4 billion from the Asian Development Bank (ADB), the Asian Infrastructure Investment Bank and the World Bank.

This includes ADB’s $1.5 billion next month under the Countercyclical Support Facility, a budget support instrument.

The minister also said about $5 billion in investments from Qatar, the United Arab Emirates and Saudi Arabia will materialize this financial year.

The three companies announced their interest in investing in Pakistan earlier this year, but no timeline or exact plans have yet been reported.

He said a $1 billion investment from the UAE in the form of a purchase on the Pakistani stock market would “certainly materialize” in the coming months.

All of Qatar’s investment commitments of around $3 billion will be made within the fiscal year ending June 2023, he added.

“They are looking at three airports in Pakistan, Karachi, Lahore and Islamabad…long term leases. They are also looking to buy two plants that will run on LNG (Liquefied Natural Gas)… It will probably happen later this year,” he said.

He said if the $3 billion figure is not reached when the fiscal year ends, the remaining amount will go into the stock market.

He also said Saudi Arabia’s crown prince had assured Prime Minister Shebaz Sharif that Riyadh would invest $1 billion by December.

Pakistan’s central bank said on Sunday that Saudi Arabia’s development authority had extended by a year $3 billion in deposits due to mature in December.

He said legal documents will soon be signed with “friendly countries” to activate the $1 billion deferred payment scheme for oil.

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