KARACHI: The government is going to issue a Panda bond — a renminbi-denominated debt instrument sold by a non-Chinese issuer within China — by March 2022, according to Muhammad Umar Zahid, director general for debt at the Ministry of Finance.

Speaking to members of the CFA Society Pakistan on Monday, Mr Zahid said the federal government was also looking to issue Eurobonds as well as sukuk and green bonds in the current fiscal year to bridge its financing gap.

“We’ll now maintain our presence in the international capital markets on a regular basis,” he said.

Of the expected federal fiscal deficit of Rs4 trillion in 2021-22, the government is determined to finance Rs1.5tr through external borrowing.

Of expected federal fiscal deficit of Rs4tr in 2021-22, plan is to finance Rs1.5tr through external borrowing

Giving the expected breakdown of external financing, he said the government would raise Rs0.34tr through Eurobonds. About Rs0.11tr will be raised through sukuk/green bonds/Panda bonds while Rs1.05tr will flow from multilateral and bilateral sources.

The rest of Rs2.5tr financing needs in 2021-22 will be met through domestic sources, including Rs1tr of the local sukuk.

Responding to a question about the timing of domestic Islamic bonds, the top official in the debt management department said he was waiting for approval from the Sharia committee of the central bank.

“We have a list of assets from the NHA (National Highway Authority) available. These are various motorways. We have three airports — Multan, Islamabad and Lahore — that we’re getting valuated... Once we get the valuation, we’ll announce a proper issuance calendar for the entire fiscal year,” he said, noting that the government could opt for raising more than Rs1tr through the sukuk if market conditions were favourable.

‘No cause for concern’

Mr Zahid said there was no cause for concern as far as foreign debt repayments of approximately $14 billion in 2021-22 were concerned.

“This number may not be that high when we bifurcate it into refinancing and the new requirement,” he said, noting that as much as $9bn would likely be rolled over.

“The only thing that needs to be worried about is $5bn maturity, which is $1bn from Eurobonds/sukuk... and the rest of the maturity is due on the multilateral and bilateral portfolios,” he added.

He said as much as 78 per cent of the country’s total external public debt of $86.4bn happens to be from multilateral and bilateral sources on concessional terms i.e. low cost and long tenor.

He acknowledged that the commercial portion of the country’s external public debt — comprising Eurobonds and loans from foreign banks — witnessed a jump from 18pc of the total in 2019-20 to 22pc in 2020-21. “We issued Eurobonds of around $2.5bn and also raised money through commercial banks and Naya Pakistan Certificates,” he said.

Mr Zahid said he could “assure the market that things are moving in a positive direction” with regard to the ongoing negotiations with the International Monetary Fund (IMF) on the stalled loan programme. In the unlikely case of failed negotiations, he said, Plan B is “to increase our flows from the commercial sources, like bond issuances and commercial loans from foreign banks.”

Responding to a question, he said one-rupee depreciation in the exchange rate increases the external debt by Rs86bn. “If the rate depreciates by Rs10, Rs860bn is added to the external debt portfolio.”

Published in Dawn, October 19th, 2021