ISLAMABAD’S plans to raise $200m from China’s capital markets through the inaugural issue of a Panda bond this year to boost its finances and diversify funding sources will be a major test of investor sentiment. Finance Minister Muhammad Aurangzeb has on multiple occasions reiterated plans to enhance Pakistan’s presence in China’s capital markets through the yuan-denominated Panda bond. Though it may not be difficult for the country to raise these funds, it will not be a walk in the park either as Chinese investors seem wary of Pakistan’s heavy dependence on continuous Chinese debt rollovers and its request for rescheduling of energy loans of nearly $15bn due to a liquidity crunch. A recent media report suggests that China’s Exim Bank is not too enthused about giving “concessional loans to Pakistan, citing a limited window and concerns over non-payment or delayed payments to Chinese power generation companies”.

The success of the bond will also help determine how quickly Pakistan can return to the international bond markets to raise the planned $2.5bn in Eurobonds. Islamabad has not tapped the global bond markets since 2021, when it sold a debt of $3.5bn in five- 10- and 30-year tenors to international investors, due to a balance-of-payments crisis which had led it to nearly default in 2022 before the IMF came to its rescue. Even though the crisis has been managed and international rating agencies somewhat upgraded the country’s credit ratings, international investors remain concerned over the slow implementation of structural policy reforms amidst stagnant foreign official and private inflows. This is in spite of official optimism that the ratings will further be upgraded from the present junk category to investment grade in the coming months as the IMF-mandated reforms are executed to boost the recent economic stabilisation. The optimism notwithstanding, investors, including the Chinese, would want speedy and tangible progress on reforms before they bet their money on us.

Published in Dawn, January 21st, 2025