Pakistan sees ‘sharpest drop’ in default risk; only country showing consistent improvement: finance minister’s aide

Pakistan has recorded one of the “sharpest drops” in sovereign default risk globally and now ranks as the second-best performer in the world, according to Credit Default Swap (CDS)-implied data reported by Bloomberg, adviser to the finance minister Khurram Schehzad said on Sunday. A Credit Default Swap-implied probability estimates the likelihood that a borrower — such as a company or a country — will fail to repay its debt. This probability is derived from the market price of its CDS, which is a type of financial insurance investors buy to protect themselves against the risk of default, according to the International Monetary Fund (IMF). If the cost of a CDS drops, it means investors see the borrower as less risky. So, when Pakistan’s CDS-implied probability falls sharply, it indicates that global investors believe the country’s chances of defaulting on its debt have significantly decreased.