Pakistan is exploring options such as Eurobonds, bilateral loans, and commercial borrowing to replace a $3.5 billion facility from the United Arab Emirates and support its foreign exchange reserves, according to its finance minister.
Muhammad Aurangzeb also told Reuters the shock from the ongoing war in the Middle East meant that Pakistan must consider a strategic petroleum reserve and a faster switch to renewable energy.
Reuters reported that Pakistan will return a $3.5 billion loan to the UAE this month, putting pressure on its reserves and risking breaches of its International Monetary Fund (IMF) programme targets.
IMF Programme & Economic Outlook
Aurangzeb, speaking on the sidelines of the IMF/World Bank annual spring meetings, said the country could manage all debt repayments, and that its reserves remained at roughly 2.8 months of import cover. Maintaining at least that level, he said, would be “an important aspect of our overall macro stability as we go forward.”
“We are looking at Eurobond, we are looking at Islamic sukuk, we are looking at dollar-settled rupee-linked bonds,” Aurangzeb said, adding that they expected to issue Eurobonds this year and are also exploring commercial loans.
Aurangzeb said while the country had not yet requested any addition or changes to its $7 billion IMF lending programme due to the economic shocks of the war in the Middle East, it was a potential option.
The Fund’s board is likely to sign off on the latest lending tranche by the end of this month or early next month, Aurangzeb said, which would unlock just under $1.3 billion via the Extended Fund Facility and the Resilience and Sustainability Facility.
Pakistan also expects to launch its first-ever Panda bond – debt denominated in Chinese yuan – next month, he said. The $250 million issue, the first of a planned $1 billion programme, will be backed by the Asian Development Bank and the Asian Infrastructure Investment Bank.
Energy Security & War Impact
Aurangzeb said the country’s expected GDP growth of close to 4%, remittances of around $41.5 billion and targeted assistance to the poorest citizens could withstand the Iran war shock for this fiscal year, which ends on June 30.
But the price spikes meant the country should focus on establishing strategic reserves of fuels and LPG – rather than simply relying on commercial reserves – and accelerate its move towards renewable energy.
(With inputs from Reuters)
