Karachi: Pakistan’s default risk, as measured by the five-year currency default swap (CDS) index, rose 4.2 percentage points to a new high of 64.2 percent on Monday, suggesting the country’s The country lacks resources to meet rising import payments and foreign debt repayments. Time
Pakistan is due to pay $1 billion against a five-year sukuk (Sharia-compliant bond) on December 5, 2022.
According to Topline Research, the yield on sukuk rose by 964 basis points to 69.96% in a day. The rise in yields suggests investors are thinking the country may default on the $1 billion sukuk.
State Bank of Pakistan (SBP) Governor Jameel Ahmed, however, clarified during the day that the country has “over $9 billion in foreign exchange reserves, which are used to pay imports and repay foreign debts.” Enough.”
The five-year CDS exhibited higher risk of default after Pakistan announced that Saudi Crown Prince Mohammed bin Salman had postponed his visit to Islamabad and a new date would be announced soon.
The crown prince was expected to announce more than $10 billion in investments during his visit. The expected inflow would strengthen Pakistan’s foreign exchange reserves.
Overview of MSCI
In its semi-annual review announcement on November 10, 2022, MSCI removed MCB Bank from its main Frontier Market (FM) index and added it to the Frontier Market Small Cap Index, the research house said. .
Pakistan now has only two constituents left in the MSCIFM index, namely Lucky Cement and Oil and Gas Development Company.
MSCI has not reported Pakistan’s weighting in the index, but it is now estimated at 0.7%. The changes in the FM index will be effective from November 30, 2022.
According to MSCI’s market classification framework, size and liquidity requirements for FM index constituents include a full-cap market size of $1 billion, a free-float market capitalization of $91 million and an annual traded value ratio of 2.5%.
Earlier, Pakistan was reclassified from Emerging Market to MSCIFM in November 2021.
According to MSCI, Pakistan had met the market access requirements under the rating framework for emerging markets, however, it no longer met the size and liquidity criteria, leading to Reclassified.
