As Pakistan strategically awaits the approval of the next IMF loan program in the upcoming fiscal year starting July 1, 2024, the country is actively preparing to re-enter the global financial markets for ‘commercial borrowing’. This strategic move includes the potential launch of Panda bonds in the Chinese market, a significant step in the nation’s financial strategy.
During the unveiling of the Economic Survey 2023-24 in Islamabad, Finance Minister Muhammad Aurangzeb revealed that commercial bank borrowing is making a comeback, citing initial discussions conducted upon his return from the United Arab Emirates.
Moody’s Ratings recently cautioned that the cost of commercial borrowing could rise to 10%, affecting emerging markets like Pakistan due to stringent monetary policies leading to increased borrowing costs.
Despite the high costs associated with foreign commercial borrowing, Pakistan sees it as a viable option to address maturing foreign debts, interest payments, and the potential current account deficit in the upcoming fiscal year.
Aurangzeb also highlighted the potential benefits of launching Panda bonds in the Chinese market, aiming to raise up to $500 million and potentially borrowing from a Chinese commercial bank, as previously done by Pakistan. This move could significantly bolster Pakistan’s financial position.
Reflecting on the country’s previous financial decisions, interim Finance Minister Shamshad Akhtar abandoned the idea of raising financing through the sale of Eurobonds and Sukuk in international markets due to the high cost of borrowing.
Looking ahead, Pakistan is expected to repay a substantial sum of $10 billion in foreign debt obligations in June and July 2024. SBP Governor Ahmad has affirmed that the government has made arrangements to honor these debts over the two months, emphasizing the initiation of the rollover process.
As Pakistan navigates its financial strategies in the global arena, the nation’s re-entry into the global financial markets for commercial borrowing indicates a significant shift in its financial outlook and priorities.
