FORMAL assurances from the Asian Development Bank and the Asian Infrastructure Investment Bank to provide $285m in guarantees have brought Islamabad’s planned inaugural Panda bond issue closer to materialisation. ADB will provide a guarantee of up to $160m, with AIIB covering $125m to back the principal of $250m and unpaid interest obligations of the bonds. These credit enhancements are required to secure a domestic ‘AAA’ rating in China for bonds to qualify as ‘investment-grade instruments’. Pakistan’s move to tap the Chinese debt market to raise $250m in Chinese yuan later this year is understandable, given that the volatility in major markets, particularly the US, is pushing global investors away from dollar bonds towards safe-haven assets such as gold. The move — part of a broader plan to raise $1bn from Chinese investors and aimed at financing two major hospitals, national telemetry systems and power distribution network upgrades — should potentially help Islamabad diversify its international financing sources and manage foreign currency exposures. The three-year fixed-rate bond will be offered to institutional investors, with an indicative coupon range of 3-4pc per annum. ADB will charge an annual fee of 90bps and AIIB 50bps in addition to a one-time upfront charge of 75bps.

The development follows the release of the blueprint of a five-year China-Pakistan Action Plan (2025–2029), aimed at broadening their “all-weather partnership” beyond economic corridors into security, climate change, counterterrorism, science & technology and culture. The Panda bond’s launch is important as Beijing scales down its investments under the multibillion-dollar CPEC project. Though the new roadmap for bilateral trade, investment and economic cooperation promises to boost our exports and market access in China, analysts say it lacks concrete financing plans, targets and strategies for implementation. Beijing’s commitment in the document to provide Islamabad with “financial support within its capacity” is being read by some as a sign of China’s waning appetite for financing and investment in Pakistan — at least until the security of its nationals working here and of its other interests is assured. Against this backdrop, Beijing’s backing of the inaugural Panda bond issue is significant. The revival of the previous momentum of Chinese investment in Pakistan, however, will continue to largely hinge on our ability to not just ensure the safety of China’s citizens but also cleaning up our policy and governance mess.

Published in Dawn, September 13th, 2025