KARACHI – Pakistan government to approach panda bond market to diversifyits external financing sources, especially considering loan repaymentobligations ahead under $60 billion China-Pakistan Economic Corridor (CPEC)projects.
Pakistan has an opportunity to lean towards Chinese inter-bank bond market,which is the third biggest after US and Japan, to ease pressure on dollarreserves.
“The government should think over it but no member of the EAC (EconomicAdvisory Council) has yet floated such an idea to the government,” a seniormember of the newly-constituted EAC said.
EAC comprising independent economists was formed to advise solutions toeconomic difficulties.
The move would be a flight from the country’s tradition sources of funding.The previous government managed to raise $6 billion through issuingconventional and shariah-compliant debt instruments in the internationalmarkets.
The country is currently facing a tough challenge on the balance ofpayments front. Most of it is coming from a huge import bill for Chinesecapital goods and its debt repayment obligations related to the massiveenergy and infrastructure projects under the CPEC.
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US ratings agency Moody’s said Pakistan faced elevated external pressuresdue to strong domestic demand and capital-intensive imports of heavyinvestments for the CPEC projects. Current account deficit of the countrywidened to $18 billion in the last fiscal year of 2017/18 from $12.6billion in the previous fiscal year. The central bank’s foreign exchangereserves dropped to $10.2 billion in July from $14.5 billion a yearearlier, barely enough to cover two-month imports.
Loans given by China to Pakistan have a 30-year length and a five-yeargrace period. Annual debt repayments and profit repatriation by Chinesecompanies are estimated at $1 billion/year.
Sources said the proposal to make CPEC-related repayments in Chinesecurrency is also being discussed at the ministry of finance.
Analysts said this may be an option for the country to avoid financialassistance from the International Monetary Fund.
