Pakistan’s government has decided not to proceed with floating at least $700 million worth of sovereign bonds in the near term due to unfavorable credit ratings and challenging market conditions. Despite budgeting $1 billion for sovereign bond transactions in the current fiscal year (2024-25), the government is now aiming for any international bond issuance, such as Eurobonds or Sukuk, to occur only by the fiscal year 2025-26. This delay could lead to a financing gap that must be addressed through other means.
The “Home-grown Reform Agenda for Growth with Stability” plan, under consideration by the government, outlines various steps for economic stabilization. While it includes ambitions like issuing $300 million in Panda bonds in the Chinese market by the end of 2024, the plan is cautious, recognizing the numerous external factors that could affect its success. The draft also emphasizes the importance of maintaining a favorable credit rating, as any downgrade could discourage investors.
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Although the plan focuses on diversifying foreign loans and increasing foreign exchange reserves, it remains silent on the issue of public debt restructuring, a crucial element many experts believe is necessary for Pakistan to overcome its current debt crisis. The country has been relying on the goodwill of Gulf and Chinese creditors to roll over its significant bilateral and commercial debt each year, resisting any formal debt restructuring for now.
Key goals of the draft plan include reducing Pakistan’s public debt-to-GDP ratio to 60% by 2029 and improving debt management through increased coordination between government institutions. The government also aims to shift its borrowing strategies by expanding the use of Islamic instruments like Sukuk and tapping into the stock market for further debt-related transactions.
The draft outlines long-term goals for managing the nation’s debt burden, but it admits that the government will continue to violate the Fiscal Responsibility and Debt Limitation Act of 2005 until at least 2029. Furthermore, the government plans to gradually implement strategies to minimize debt servicing costs and extend the maturity profile of both domestic and external debt.
While the government is focusing on these medium-term solutions, immediate financial gaps and the challenging international bond market present significant hurdles.
