Pakistan Investors Brace For Major Jolt as Imran Khan-Army Showdown Intensifies

Investors in Pakistan are bracing for a big jolt as former prime minister, Imran Khan's showdown with the army is reaching disproportionate heights.

There are warnings of a massive drop in the rupee, with many analysts forecasting another 20 per cent decline. The tension are at an all time high following the arrest of Khan last week This has sent worrying signals that the International Monetary Fund's (IMF) $6.7 billion bailout may be further pushed out of reach. The bond managers are staring at a spectrum of sovereign default.

Khan who was arrested was later on released by the top court in Pakistan. He has been on a confrontation course with the Pakistan Army ever since he was ousted from power. Ha has also been pushing the government to hold early elections in the country.

Amidst these developments, risks have been rising increasingly for the investors.

"To be invested in Pakistan means you should be prepared for bigger risks," said Edwin Gutierrez, head of emerging-market sovereign debt at abrdn plc, a long-time investor in the nation. "Black swans are a bigger probability."

Moody's Investors Service said this month that the nation may default near June, if it fails to secure IMF funding. The country's sovereign credit was rated an all-time low in February.

Bond investors on the other hand are growing more nervous, with the extra yield act they demand to hold Pakistan's dollar bonds over US treasuries closing above 35 percentage points to a record this month. Pakistan's dollar bonds are trading at distressed levels, with notes due in 2031 quoted at about 34 cents on the dollar.

Khan on the other hand has said that he fears another arrested after police surrounded his home in Punjab province on Wednesday. This has stoked concerns over a repeat violence that took place following his arrest the first time. The security forces have said that they intend searching his home for supporters who were suspected of attacking military facilities following his arrest.