Pakistan’s debt-to-GDP ratio in a danger zone of 70%

With Pakistan’s debt-to-GDP ratio in a danger zone of 70%, and between 40% and 50% of government revenues earmarked for interest payments this year, only default-stricken Sri Lanka, Ghana, and Nigeria are worse off. Just $500 million of interest or ‘coupon’ payments are due on Pakistan’s international bonds this year, but the chief of the central bank has said $3 billion is needed to meet overall external debt payments. Pakistan desperately needs the International Monetary Fund to release an overdue tranche of $1.1 billion, leaving $1.4 billion remaining in a stalled bailout programme set to end in June. “There is just a long-term indebtedness problem,” said Jeff Grills, the head of emerging markets debt at Aegon Asset Management, who held Pakistan bonds until the floods hit. “It is more a question of when they need to restructure, rather than if.” Most of Pakistan’s bonds are still trading at less than half their face value. Such a restructuring of Pakistan’s bonds would represent its first international default since 1999, according to the Bank of Canada-Bank of England Sovereign Default Database. Pakistan’s former finance minister, Miftah Ismail, who successfully negotiated an extension to last year’s International Monetary Fund programme before being sacked in the political tumult, also thinks the IMF is the only logical option.