While many of the world's eyes are on the carnage in Argentina as EM collapses, Pakistan has quietly devalued the Rupee three times this year, amid tumbling reserves which has sparked enough investor anxiety to send CDS spiking.
Pakistan is now 'riskier' than Greece, Ukraine, and Argentina...
The country has been roiled by domestic political and economic turmoil and was not helped this week when Moody’s changed the outlook on Pakistan to negative from stable citing heightened external vulnerability risk.
Moody’s affirmed its B3 rating
Says foreign exchange reserves have fallen to low levels and will not be replenished over the next 12-18 months, absent significant capital inflows.
Moody’s says low reserve adequacy threatens continued access to external financing at moderate costs, in turn potentially raising government liquidity risks.
It certainly looks like they are losing control of the currency...
And to pile on - Pakistan's main stock index - down 33% YTD in USD terms - just suffered a 'death cross'...
Notably all of this carnage has accelerated since the start of January which coincided with Pakistan's decision to ditch the dollar (following Trump's remarks) and get closer to China.
"SBP has already put in place the required regulatory framework which facilitates use of CNY in trade and investment transactions," the State Bank of Pakistan (SBP) said in a press release late Tuesday, ensuring that imports, exports and financing transactions can be denominated in the Chinese currency.
"The SBP, in the capacity of the policy maker of financial and currency markets, has taken comprehensive policy related measures to ensure that imports, exports and financing transactions can be denominated in yuan," Dawn news, Pakistan's most widely read English-language daily, announced while quoting the SBP press release.
As we reported in December, Pakistan has been contemplating the move since last month's formal launch of the Long Term Plan for the China-Pakistan Economic Corridor (CPEC), signed by the two sides on November 21. The CPEC is a flagship project of China's Belt and Road initiative - the 3,000 km, over $50 billion corridor which stretches from Kashgar in western China to Gwadar port in Pakistan on the Arabian sea.
Will China step up?