The government of Pakistan will be issuing a renminbi-denominated debt instrument called the Panda bond by March of next year.
According to the director-general for the debt at the Ministry of Finance Muhammad Umar Zahid the Panda bond is sold by a non-Chinese issuer within China.
Zahid said while speaking to members of the CFA Society Pakistan on Monday that the federal government was also planning on issuing Eurobonds along with Sukuk and green bonds in the current fiscal year in order to bridge its financing gap.
He added, “We’ll now maintain our presence in the international capital markets on a regular basis”.
The government has decided to finance Rs1.5tr out of the expected federal fiscal deficit of Rs4 trillion in 2021-22 through external borrowing.
While providing the expected breakdown of external financing Zahid explained that the government would raise Rs0.34tr through Eurobonds, around Rs0.11tr through Sukuk/green bonds/Panda bonds while Rs1.05tr will be raised via multilateral and bilateral sources.
The remaining Rs2.5tr financing needs in 2021-22 will be raised via domestic sources, including Rs1tr from the local Sukuk.
When asked about the timeline for domestic Islamic bonds Zahid answered that he was waiting for approval from the Sharia committee of the State Bank of Pakistan.
He said, “We have a list of assets from the NHA (National Highway Authority) available. These are various motorways. We have three airports — Multan, Islamabad and Lahore — that we’re getting evaluated… Once we get the valuation, we’ll announce a proper issuance calendar for the entire fiscal year,” He added that the government had the option to raise over Rs1tr through the Sukuk provided market conditions become favorable.
Zahid said there was no need to worry as far as foreign debt repayments of nearly $14 billion in 2021-22 were concerned.
He noted, “This number may not be that high when we bifurcate it into refinancing and the new requirement. The only thing that needs to be worried about is $5bn maturities, which is $1bn from Eurobonds/Sukuk… and the rest of the maturity is due on the multilateral and bilateral portfolios”. The official added that around $9bn would likely be rolled over.
According to Zahid, 78% of Pakistan’s total external public debt amounting to $86.4bn is from multilateral and bilateral sources on concessional terms i.e., low cost and long tenor.
The director-general recognized that the commercial portion of the country’s external public debt that comprises Eurobonds and loans from foreign banks witnessed a spike from 18% of the total in 2019-20 to 22% in 2020-21. He said, “We issued Eurobonds of around $2.5bn and also raised money through commercial banks and Naya Pakistan Certificates”.
Zahid added that he could “assure the market that things are moving in a positive direction” as far as the ongoing negotiations with the International Monetary Fund (IMF) on the stalled loan program are concerned. He added that in the unlikely case of failed negotiations, Plan B is “to increase our flows from the commercial sources, like bond issuances and commercial loans from foreign banks.”
While answering a question he said, “If the rate depreciates by Rs10, Rs860bn is added to the external debt portfolio.”