Pakistan won’t default on debts despite historic floods: Minister

Pakistan will “absolutely not” default on debt obligations despite catastrophic floods, the finance minister says, signaling there would be no major deviation from reforms designed to stabilize a struggling economy.

Floods have affected 33 million Pakistanis, inflicted billions of dollars in damage, and killed more than 1,500 people – creating concern that Pakistan will not meet its debts.

“The path to stability was narrow, given the challenging environment, and it has become narrower still,” finance minister Miftah Ismail said on Sunday.

“But if we continue to take prudent decisions – and we will – then we’re not going to default. Absolutely not.”

Pakistan was able to bring an International Monetary Fund (IMF) program back on track after months of delay, thanks to tough policy decisions. But the positive sentiment was short-lived before the historic floods hit.

Despite the disaster, Ismail said most stabilization policies and targets were still on track, including increasing dwindling foreign exchange reserves.

Central bank reserves stand at $8.6bn, despite the influx of $1.12bn in IMF funding in late August, which are only enough for about a month of imports. The end-year target was to increase the buffer up to 2.2 months.

He said Pakistan will still be able to increase reserves by up to $4bn, even if the floods hurt the current account balance by $4bn in more imports, such as cotton, and a negative impact on exports.

However, he estimated the current account deficit will not increase by more than $2bn following the floods.

Agencies