Pakistan Edging Closer to Default as Violent Protests May Delay IMF Bailout, Rupee Falls to Record Low

Pakistan is edging closer to a default as the political crisis that emerged after former prime minister Imran Khan’s arrest is set to delay an International Monetary Fund bailout.

Deadly clashes between supporters of Imran Khan and police spread across the country after Pakistan’s anti-corruption agency arrested the former prime minister on Tuesday. The violent protests have entered its third day on Thursday and at least eight people have been killed and 290 injured so far across the country.

“It looks increasingly difficult for Pakistan to avoid a default in the absence of fresh funding support coming in,” Eng Tat Low, an emerging-market sovereign analyst at Columbia Threadneedle Investments in Singapore, reportedly told Bloomberg.

“I am also growing more skeptical whether an IMF deal is going to come through. Their heavy debt amortisation against precarious reserves would suggest default is imminent,” he added.

The unrest comes at a time when the Shehbaz Sharif government is negotiating with the IMF to restart a $6.5 billion bailout programme, which it needs to avoid a default.

The external debt service is estimated at about $22 billion for fiscal year 2024, according to Columbia Threadneedle.

Pakistan’s rupee has lost nearly 50% over the past 12 months, slumping to a new record low. The main stock index has suffered a double-digit decline over the same period.

On Thursday, the rupee tumbled 3.3% to an all-time low of 300 to the dollar. The country’s international bonds, already in deeply distressed territory of as little as 32 cents, dropped more than 1 cent in the dollar on the day.

Dollar bonds due 2031 fell to the lowest since November on Wednesday, trading at 33.85 cents on the dollar. The extra yield investors demand to hold Pakistan’s dollar bonds over US Treasuries has risen above 34 percentage points, close to the record reached late last year.

Pakistan could default without an IMF loan bailout as its financing options beyond June are uncertain, Moody’s Investor Service said this week.