Pakistan’s CDS Spread Falls Sharply, Signaling Economic Recovery and Growing Investor Confidence
Pakistan’s Credit Default Swap (CDS) spread, which serves as insurance against credit default risk, has dropped to a low of 505 basis points (5.05%), marking a significant recovery of over 11,883 basis points (11.89%) from November 2022. This sharp decline in CDS spread places Pakistan’s risk profile lower than some emerging and frontier markets, a remarkable turnaround for the country’s financial stability.
The 5-year CDS spread has significantly decreased from 12,388 bps in November 2022, reflecting a reduced risk of default. This improvement is attributed to better debt management, an increase in foreign reserves, and stronger fiscal discipline, all contributing to a restoration of market confidence in Pakistan’s ability to fulfill its sovereign debt obligations.
Read More: PM Shehbaz: Pakistan Successfully Averts Risk of Potential Default
As investor sentiment improves, Pakistan’s global bonds have been on a rally, signaling growing optimism among creditors regarding the country’s financial health.
Khurram Schehzad, Advisor to the Finance Minister, commented, “The decline in country risk premiums provides a timely opportunity for Pakistan to plan and re-enter global capital markets, particularly with global interest rates on the decline. Lower borrowing costs and increased liquidity will help alleviate external pressures further, strengthening Pakistan’s external position and boosting its economic prospects.”
With its improved credit profile and favorable market conditions, Pakistan is now well-positioned to capitalize on this opportunity, attracting credit and investment flows to support its economic growth and stability.
