Pakistan is preparing to debut yuan-denominated Panda bonds this year to shore up finances, its Finance Minister said. The government remains optimistic about meeting the International Monetary Fund’s bailout loan terms.
The South Asian nation is planning to raise $200 million to $250 million from Chinese investors over the next six to nine months, Finance Minister Muhammad Aurangzeb told Bloomberg’s David Ingles and Rebecca Choong Wilkins in a television interview Monday.
All three credit agencies have recently upgraded Pakistan’s sovereign rating, prompting the plan. Aurangzeb sees further upgrades and the challenge is to get into a “single-B” category, which allows the country to return to global bond markets to raise funds.
“The country is very keen, to tap the Panda bonds and the Chinese capital markets,” Aurangzeb said on the sidelines of the Asian Financial Forum in Hong Kong. “We have been remiss as a country not to tap it previously.”
The latest figure is slightly lower than the $300 million the finance minister was targeting in a March 2024 interview. China International Capital Corporation is advising Pakistan on the issuance of Panda bonds, Aurangzeb said.
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Pakistan Gains Stability
Pakistan has enjoyed some stability from two years ago when an IMF bailout deal was in limbo and inflation and interest rates were above 20%. The government is optimistic it will meet the terms for an ongoing $7 billion loan.
Aurangzeb said the IMF, scheduled to visit Pakistan next month, wants the country to broaden its tax base and increase the tax-to-GDP ratio from 10% in December to 13.5%.
“We are well on our way to achieve that target, not only because the IMF is saying that but because from my perspective the country needs to get into that benchmark to make our fiscal situation sustainable,” he said.
After Pakistan clinched the IMF bailout last year, it has been getting some reprieve. This includes cooling inflation. The inflation provides space for policymakers to cut borrowing costs further. These efforts aim to help prop up a nation that remains hammered by structural weaknesses. Stronger remittances, a bright spot, helped shore up currency reserves.
The rupee, as a result, rose about 2% in 2024, among best performers in emerging markets. The benchmark stock index outperformed nearly all other equities markets last year.
Still Tough
Even so, Pakistan remains in a tough spot.
The government has to increase taxes to secure a fresh $1 billion loan tranche from the IMF or miss the lender’s tax revenue requirement for fiscal year ending June 2025 which could put the bailout at risk, Bloomberg Economics’ Ankur Shukla said in a note on Jan. 8.
Having gone through 25 loan programs over half a century, Pakistan must institute durable reforms in key areas of the energy sector, tax collection and state-owned enterprises to end a cycle of indebtedness, Aurangzeb told an IMF forum in October.
On Monday, Aurangzeb said the nation’s gross domestic product will probably expand 3.5% in the fiscal year ending June. Pakistan had set a 3.6% economic growth target after a 2.5% expansion the prior financial year.
The State Bank of Pakistan, having cut the benchmark rate to its lowest in more than two years, will announce its decision on Jan. 27, while it expects inflation to stabilize within the target range of 5%–7% over the next 12 months.
“We are into that phase of stabilization,” Aurangzeb said. “Now where do we go from here? We have to focus on sustainable growth. We are now very focused is to fundamentally change the DNA of the economy to make it export-led.”
This news is sourced from [Bloomberg] and is for informational purposes only.
