Pakistan, facing significant financial constraints and relying heavily on loans from the International Monetary Fund (IMF) for several months, is now exploring a new bond initiative. The country has announced its intention to issue Panda bonds denominated in Chinese yuan this year to bolster its financial position.
The government aims to secure between $200 million and $250 million from Chinese investors through these Panda bonds over the next six to nine months, as stated by Finance Minister Muhammad Aurangzeb in an interview with Bloomberg.
Aurangzeb expressed the country’s eagerness to engage with the Panda bonds and the Chinese capital markets, acknowledging past missed opportunities. He made these remarks during the Asian Financial Forum held in Hong Kong.
Additionally, he noted that China International Capital Corporation is providing guidance to Pakistan regarding the issuance of these bonds.
In a separate discussion with the South China Morning Post (SCMP), Aurangzeb emphasized the importance of diversifying Pakistan’s funding sources.
It is worth mentioning that the targeted amount of $200-$250 million is somewhat lower than the $300 million Aurangzeb aimed for in March of the previous year when he assumed the finance ministry role.
“Since my appointment in March 2024, I have been advocating for the issuance of Panda bonds, specifically an inaugural sovereign Panda bond. I am urging all involved, including our internal teams, to expedite this process with the goal of completion before June,” Aurangzeb was quoted as saying by SCMP.
Panda bonds refer to debt instruments that are denominated in yuan and issued by non-Chinese entities within China’s capital markets.
These bonds provide an opportunity for foreign issuers, such as multinational corporations, international financial institutions, and sovereign governments, to secure funding from Chinese investors.
According to a report by SCMP, there is growing interest among traders and nations aiming to reduce their dependence on the US dollar while engaging with the world’s second-largest economy at favorable rates.
The initiative to issue Panda bonds follows a recent upgrade in Pakistan’s sovereign credit rating. The finance minister is optimistic about further upgrades and aims to achieve a “single-B” rating, which would facilitate the country’s re-entry into global bond markets for fundraising purposes.
The issuance of Panda bonds by Pakistan is expected to enhance the integration of its capital markets with those of China, thereby assisting Beijing in its efforts to promote the use of the yuan, as noted by Aurangzeb in the SCMP report.
Aurangzeb also mentioned that Pakistan is looking to emulate Egypt’s approach in issuing yuan-denominated bonds, leveraging credit improvements facilitated by the China-led Asian Infrastructure Investment Bank (AIIB).
Last year, Egypt successfully issued Panda bonds in the mainland Chinese market with guarantees from the AIIB and the African Development Bank, covering both principal and interest.
Aurangzeb stated, “I’ve met the president of the AIIB in Washington… with a very clear view that we will replicate what Egypt did in terms of the credit enhancement… which allows us to access the local capital markets for the panda bond,” as reported by SCMP.
This move by Pakistan is anticipated to contribute to the internationalization of the yuan and enhance collaboration with the world’s second-largest and second-deepest capital market.
Pakistan remains reliant on the IMF bailout package. In 2023, the country faced the threat of default as its economy deteriorated due to political instability and poor economic management. However, there was a notable improvement in the following year, with the inflation rate decreasing from nearly 38 percent in May 2023 to 4.1 percent in December 2024.
According to a report by SCMP, Aurangzeb indicated that Pakistan’s economic troubles stemmed from its “primarily import-led” structure, which led to a depletion of foreign currency reserves and a balance of payments crisis. He emphasized the necessity for a fundamental shift towards an export-led growth model.
The Pakistani government is currently optimistic about fulfilling the conditions for an ongoing IMF loan of $7 billion. An IMF delegation is expected to visit Pakistan next month, with the agency urging the country to expand its tax base and achieve a tax-to-GDP ratio of 13.5 percent, up from 10 percent in December, as reported by Bloomberg.
