The government of Pakistan plans to issue yuan-denominated bonds this year, a strategic step toward increasing the country’s financial stability and adhering to the conditions of the bailout package agreed upon with the IMF. According to Finance Minister Muhammad Aurangzeb, the government is considering tapping between $200 million and $250 million from Chinese investors in the next six to nine months. This initiative is part of Pakistan’s wider strategy to diversify its financial resources and address fiscal challenges that have been ongoing.
‘Pakistan has never tried this so far’ – says Finance Minister on launching yuan-denominated bonds
Mr. Aurangzeb was in confident stride over raising the required amount from the Chinese capital market and, in particular from Panda bonds while making these comments during an interview on television the other day. The Pak bond denominated in Chinese yuan opens up a whole new window for resource mobilization. “Pakistan never tried this so far,” an enthusiastic finance minister said to illustrate the eagerness of his country to enter this market.
This comes against the backdrop of an improving sovereign credit rating for Pakistan, as all three major credit agencies have upgraded the outlook for the nation in recent times. However, this notwithstanding, Pakistan still pursues a “single-B” rating, says Aurangzeb, which would finally give the country an avenue to tap global bond markets and raise more money.
Is Pakistani economy stabilizing?
But the IMF bailout has also brought some respite to Pakistan, where the economy seems to be stabilizing after high inflation and interest rates. The government feels fairly confident about meeting all the conditionalities of the IMF, one of which will require increasing the tax-to-GDP ratio from 10% to 13.5% of the country. According to Aurangzeb, this adjustment was not only meant to meet the expectations of the IMF but also to create fiscal sustainability for Pakistan in the long run.
Despite these efforts, however, Pakistan continues to face demands for deeper reform in areas considered crucial to progress, including state-owned enterprises and energy, taxes, and a reduction in reliance on lending. The government’s medium-term strategy envisions a policy shift toward sustainable economic growth through rebalancing away from consumption-driven growth to one that is propelled by exports.
Looking ahead, the country projects that its GDP growth will inch up to 3.5% by the end of this fiscal year, while inflation is seen to stabilize within the target bracket of 5-7% in the following months. The good performance of the country’s economy, given the 2% appreciation in the rupee and good performance in the stock market, has sustained hope for continued recovery.
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