Pakistan’s Credit Default Swap (CDS) spread, a key indicator of credit default risk, has fallen to 505 basis points (5.05%), marking a remarkable recovery of over 11,883 basis points (11.89%) from its peak of 12,388 bps in November 2022. This significant drop reflects a substantial reduction in the country’s perceived default risk and highlights growing market confidence in Pakistan’s financial stability.
The improvement in Pakistan’s 5-year CDS spread is attributed to better debt management, increased foreign reserves, and fiscal discipline, which have collectively restored investor trust in the country’s ability to meet its sovereign debt obligations. As a result, Pakistan’s global bonds have been rallying, further boosting optimism among creditors about the nation’s financial health.
Opportunity to Re-Enter Global Capital Markets
Khurram Schehzad, Advisor to the Finance Minister, emphasized that the decline in country risk premiums presents a timely opportunity for Pakistan to re-enter global capital markets. With global interest rates on the decline, Pakistan could benefit from lower borrowing costs and increased liquidity, which would help ease external pressures and strengthen the country’s economic position.
“The reduction in risk premiums provides Pakistan with a chance to attract credit and investment flows, further boosting its external position and economic prospects,” Schehzad stated.
Improved Credit Profile and Economic Prospects
The improved credit profile, coupled with favorable market conditions, positions Pakistan to capitalize on this momentum. Analysts believe that the country’s ability to maintain fiscal discipline and manage external debt effectively will be critical in sustaining this positive trajectory. The rally in Pakistan’s global bonds and the sharp decline in CDS spreads signal growing investor confidence, paving the way for enhanced credit and investment inflows.
This development comes at a crucial time for Pakistan, as it seeks to stabilize its economy and strengthen its external position.
