Cash-bound Pakistan, which has relied for months on loans from the International Monetary Fund (IMF) to maintain its economy, is now experimenting with a new bond scheme. Pakistan says it is supporting its finances by issuing former religious panda bonds, the original currency of the year.
Pakistan is planning to raise $250 million from Chinese investors
Pakistan aims to raise $250 million from Chinese investors over the next six to nine months through panda bonds.
“The country is very keen to utilize panda bonds and China’s capital city centre, Aurangzeb said on the sidelines of the Asian Financial Forum held in Hong Kong.
He also said China International Capital Corporation has advised Pakistan on issuing Panda bonds.
In another interview with the South China Morning Post (SCMP), Auranzeb said it was “absolutely important” for Pakistan to diversify its funding base.
But the $200 million to $250 million that Pakistan plans to raise from Chinese investors is the $300 million targeted last March after Orangeb was given a Treasury portfolio slightly lower than.
“Since I took over (in March 2024), I’ve been very vocal about this. I want to go to Panda Bond, the first sovereign Panda Bond. I’ll do this by June. “Aurangzeb was quoted as saying by SCMP.
But what is a Panda Bond?
Panda bonds are Yuan sects and are issued in Chinese capital markets by non-Chinese companies.
Panda bonds allow foreign issuers, including multinational corporations, international financial institutions and sovereign governments to access capital from Chinese investors
According to the SCMP report, traders and countries are profiting from excessive dependence on the US dollar, while also leveraging the world’s second-largest economy at attractive rates.
The plan to issue panda bonds comes after Pakistan’s sovereignty rating was recently upgraded. The Finance Minister hopes to further upgrade and target reaching the “Single B” category.
How Pakistan issuing panda bonds will support China
The issuance of panda bonds will help Pakistan integrate its capital markets further with China. This will help Beijing promote its use of currency.
He further stated that Pakistan followed Egyptian experience to issue principal bonds behind the credit improvements from China-led Asian Infrastructure Investment Bank (AIIB).
Last year, Egypt received guarantees from the AIIB and the African Development Bank to cover principal and interests to issue panda bonds in the local mainland Chinese market.
“We met the president of AIIB in Washington… with a very clear view of what Egypt did with regard to credit enhancements… we now have access to the local capital markets of panda bonds,” Aurangzeb told SCMP. .
Pakistan’s moves support original internationalization
The report said Aurangzeb said it would help Pakistan support the “internationalization of the yuan” and boost cooperation with “the second and second deepest capital market in the world.”
Pakistan still relies on the IMF relief package
Pakistan was on the verge of default in 2023 as the economy dried up amid political turmoil and economic mismanagement, but last year inflation was from nearly 38% in May 2023 to 4.1% in December 2024. This has improved as the rate has decreased.
Aurangzeb said Pakistan is in trouble as the economy is “mainly import-driven” and caused the country to “drain foreign currency and balance payment problems,” according to a report by the SCMP .
“So we have to fundamentally change the DNA of the economy towards export-driven growth,” he said.
The Pakistani government is currently optimistic that it will be able to meet the conditions for the ongoing IMF $7 billion loan.
Next month, an IMF delegation is scheduled to visit Pakistan. The agency hopes Pakistan will expand its tax base and reach a 13.5% tax-GDP ratio from 10% in December. Orlanzeb was quoted as saying by Bloomberg.
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