Pakistan’s external financing gap could rise to $8bn: Morgan Stanley By Khurram Hussain
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he outlook for Pakistan is worsening, says Morgan Stanley in a report released on Friday. The country has “underperformed significantly since February”, with spreads widening up to 1250 basis points and some bonds selling for as low as sixty cents on the dollar. “The key driver has been rising concerns about Pakistan’s external funding gap” say the authors of the report. The deteriorating current account deficit, “increased risks to the IMF disbursements” and slowing remittances are principally responsible. “We expect total funding to be $35 billion for 2022” the report says. The current account deficit could widen to $17bn, and “predetermined drain on reserves” is $18bn. The authors consider external financing requirements under two scenarios: with and without and IMF program. “[I]n a better scenario, we estimate the available sources to be $32bn, assuming Pakistan will receive the next IMF tranches and issue Eurobonds successfully. This means a $3bn funding gap.” This means even with a fund program and a successful Eurobond floatation, there will still be $3bn required to plug the financing gap in 2022. The real problem begins in the absence of an IMF program. “[I]f Pakistan does not get the rest of the EFF loans from the IMF, it would add $2.8bn of funding pressure. And if Pakistan is not able to roll over the global sukuk bond due in December 2022 it adds another $1bn of funding pressure. In this case we estimate the funding gap to be $8bn, also driven by lower private sector loan disbursements”. The authors advise their clients to steer away from Pakistani paper. “We suggest a dislike stance on Pakistan” they say bluntly, pointing to the “downside risks regarding funding” and persistent uncertainty around the talks with the IMF, with
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oil prices continuing to rise. The authors also point out risks to Pakistan’s credit rating of B negative given these powerful vulnerabilities. “[W]e don’t think that now is a good time to be long in Pakistan despite their cheaper valuations. Pakistan’s bonds rallied on
Friday as the government began the process of fuel price adjustments on late Thursday night. The adjustment was cheered by the markets since it is the first step down the road the country has to walk to restore its economic viability. n
Khaadi announces $25mn investment from IFC
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By Saad Tanvir
n a news filing today, Khaadi officially announced that IFC is to invest up to $25 million in the organization against a minority stake. In an email sent from Khaadi’s top management to its employees, it claimed “This strategic investment will enable us to accelerate our growth plans, support future sustainability and empower us to achieve our vision of becoming a global brand.” This would be the first investment by IFC in Pakistan’s fashion retail sector, where IFC has not only promised financial
investment, but also its strategic expertise and global presence to bring Khaadi closer to its vision of becoming a global brand. In September 2021, IFC had announced this proposal as a quasi-equity investment via convertible preference shares for up to $25 million. This takes Khaadi’s initial expansion plan to: grow its operations as it recovers from disruptions related to Covid-19 through expansion of footprint/retail space; accelerate global online sales; and expand the international store network, a step further towards its implementation phase. The International Finance Corporation is an international financial institution that offers investment,
