ISLAMABAD: With conventional capital markets remaining uncertain and largely unfavourable, Pakistan plans to shift its focus towards Sustainable Bonds and Panda Bonds over the next three years to diversify external financing and tap into climate-related funding opportunities.
According to the Medium Term Debt Strategy (MTDS 2026–28), external financing will continue to prioritise multilateral and bilateral sources, which offer concessional terms and longer maturities. However, to broaden market access and improve financing flexibility, the government is preparing to re-enter international capital markets through instruments such as Panda Bonds, Sustainable Bonds, and Eurobonds — subject to favourable global interest rate conditions and macroeconomic stability.
The Debt Management Office (DMO) of the Ministry of Finance said preparatory work is underway for the issuance of Sustainable Bonds, and a Sustainable Financing Framework has been finalised and is currently under review by the federal cabinet. “This framework will serve as the foundation for all upcoming sustainable bond issuances,” the DMO stated, adding that the structure of these instruments — including maturity, interest rate type, and repayment terms — will be aligned with investor demand.
Sustainable Bonds require issuers to commit proceeds toward environmental, climate-resilient, and social projects under defined eligibility criteria. The funds must be transparently tracked and reported to financiers. Eligible projects include low-carbon transport, renewable energy, water quality management, pollution control, health, education, and green buildings.
Pakistan has already established a $1bn Panda Bond programme, with an initial issuance of $200-250 million planned in FY26. Additional tranches are expected in the medium term.
Initial Panda Bond issuance slated for FY26
Currently, Pakistan’s external financing primarily comes from multilateral and bilateral creditors. Multilateral debt forms the largest share — approximately 47pc — followed by bilateral loans and deposits (17pc and 10pc, respectively). Loans from foreign commercial banks, which are shorter-term and carry market-based interest rates, account for around 7pc of the external debt.
Outstanding Eurobonds and Sukuk — longer-term instruments with market-based rates — make up 8pc of external debt, down from 11pc previously. The DMO noted that the rising share of bilateral deposits and short-term commercial bank loans has increased refinancing and rollover risks. At the same time, limited access to long-term market-based instruments has constrained financing options. Debt owed to the IMF has risen to $8.4bn by the end of FY25, in line with programme disbursements.
The external debt portfolio remains concentrated in a few major currencies: the US dollar accounts for 57.8pc, followed by Special Drawing Rights (29.88pc), yuan (5.21pc), yen (3.95pc), and the euro (2.62pc).
Domestically, debt will continue to be the primary source of government financing during the strategy period. The composition of domestic instruments is being optimised to improve the maturity profile and reduce refinancing risks. The strategy prioritises greater net issuance of fixed-rate securities, including zero-coupon bonds and conventional fixed-rate Pakistan Investment Bonds.
Published in Dawn, August 19th, 2025