Pakistan plans to re-enter global capital markets with Panda Bonds, Sustainable Bonds, and Eurobonds

Pakistan is preparing to re-enter international capital markets using instruments like Panda Bonds, Sustainable Bonds, and Eurobonds, contingent on favorable global interest rates and macroeconomic stability. This shift is being made in response to the challenging and uncertain global capital market environment, Dawn reported. 

According to the Medium-Term Debt Strategy (MTDS 2026–28), the government will also continue to focus on multilateral and bilateral financing due to the concessional terms and extended maturities they offer. 

The Debt Management Office (DMO) under the Ministry of Finance stated that work is already underway for the issuance of Sustainable Bonds. A Sustainable Financing Framework has been finalised and is under review by the federal cabinet. This framework will guide future sustainable bond issuances, with details regarding maturity, interest rate types, and repayment terms designed to meet investor demand.

According to the news report, Sustainable Bonds will require issuers to allocate proceeds to environmental, climate-resilient, and social projects, with clear eligibility criteria. These projects may include low-carbon transport, renewable energy, water management, pollution control, and green buildings, among others. Transparency and accountability will be crucial, as funds will need to be tracked and reported to financiers.

In addition to Sustainable Bonds, Pakistan is set to launch its Panda Bond program, with an initial issuance of $200–250 million planned for fiscal year 2026. The government plans additional tranches in the medium term. This follows Pakistan’s establishment of a $1 billion Panda Bond program.

Currently, Pakistan’s external financing relies heavily on multilateral creditors, which make up about 47% of external debt, followed by bilateral loans and deposits. Short-term loans from foreign commercial banks comprise 7%, while longer-term Eurobonds and Sukuk make up 8%, a decrease from 11% in previous years. The rising share of short-term loans and bilateral deposits has led to higher refinancing risks.

Despite increasing borrowing from international sources, Pakistan’s external debt remains concentrated in a few major currencies, with the US dollar dominating at 57.8%. Special Drawing Rights (SDR), the Chinese yuan, yen, and euro make up smaller portions.

On the domestic side, the government will continue relying on domestic debt to finance its activities, with an emphasis on fixed-rate securities, including zero-coupon bonds, to optimize the maturity profile and reduce refinancing risks.