Massive jump in fresh sovereign guarantees

Issuance of fresh sovereign guarantees jumped to PKR 586.3Bn in FY17 from an average of PKR 143Bn for the past 5 years, according to the latest annual report by SBP. The total stock of sovereign guarantees is now PKR 936.6Bn, or 2.9% of GDP, with 90% of these on domestic loans. The report warns that this creates a moral hazard and increases the default risk as guarantees usually cover losses on default.