Pakistan is preparing to issue yuan-denominated bonds for the first time this year to support public finances, Finance Minister Muhammad Aurangzeb said, while the government remains optimistic about meeting the conditions of an IMF bailout loan.
The South Asian country plans to raise $200 million to $250 million from Chinese investors over the next six to nine months, Finance Minister Muhammad Aurangzeb told Bloomberg reporters David Engels and Rebecca Chung-Wilkins in a television interview on Monday.
This plan comes at a time when Pakistan’s sovereign rating was recently upgraded by the three credit agencies. Aurangzeb sees further upgrades, and the challenge is to enter the “single-B” category, which allows the country to return to global bond markets to raise funds.
“The country is very keen to benefit from Chinese panda bonds and capital markets,” Aurangzeb said on the sidelines of the Asian Financial Forum in Hong Kong. “We were remiss as a country in not taking advantage of it before.”
The latest figure is slightly lower than the $300 million the finance minister had been targeting in an interview in March 2024. Aurangzeb said China International Capital Corporation is advising Pakistan on the panda bond issue.
Pakistan enjoys some stability than it did two years ago when the IMF bailout deal was in limbo and inflation and interest rates were higher than 20%. The government is optimistic that it will meet the terms of the ongoing loan worth $7 billion.
Aurangzeb said the International Monetary Fund, which is scheduled to visit Pakistan next month, wants Pakistan to expand its tax base and reach a tax-to-GDP ratio of 13.5%, from 10% in December.
“We are on our way to achieving this target, not only because the IMF says so but because in my view, the country needs to reach this benchmark to make our financial position sustainable,” he said.
After Pakistan agreed to an International Monetary Fund bailout last year, it got some relief, including from cooling inflation that provides room for policymakers to lower borrowing costs further and help support a country that still suffers from structural vulnerabilities. Strong remittances, a bright spot, helped support currency reserves.
As a result, the rupee will rise by about 2% in 2024, becoming among the best-performing rupees in emerging markets. The benchmark stock index has outperformed almost all other stock markets in the past year.
Still difficult
However, Pakistan remains in a difficult position.
The government must raise taxes to secure a new $1 billion loan tranche from the International Monetary Fund or miss the lender’s tax revenue requirements for the fiscal year ending in June 2025, potentially jeopardizing the bailout, Ankur Shukla of Bloomberg Economics said in a note dated January 20. To danger. 8.
Aurangzeb told an International Monetary Fund forum last October that, having gone through 25 loan programs over half a century, Pakistan must make lasting reforms in key areas such as the energy sector, tax collection and state-owned enterprises to end the cycle of debt.
Aurangzeb said on Monday that the country’s gross domestic product (GDP) will likely expand by 3.5% in the fiscal year ending in June. Pakistan set an economic growth target of 3.6% after an expansion of 2.5% in the previous fiscal year.
The State Bank of Pakistan, which cut its benchmark interest rate to its lowest level in more than two years, is scheduled to announce its decision on January 27, while inflation is expected to stabilize within the target range of 5% to 7% next year. 12 months.
“We are in that stage of stability,” Aurangzeb said. “Now where do we go from here? We have to focus on sustainable growth. We are now very focused on fundamentally changing the DNA of the economy to make it export-led.