Pakistan plans rupee-denominated, dollar-settled bond, says Aurangzeb
Pakistan Plans New Rupee-Linked Dollar-Settled Bond
Pakistan is preparing to introduce a new rupee-denominated bond that would be settled in US dollars, as the government looks to diversify its borrowing sources and reduce its dependence on the domestic banking system.
Finance Minister Muhammad Aurangzeb disclosed the plan while addressing the Asian Development Bank’s “Mobilising Private Capital: National Strategic Dialogue on PPPs and Privatisation” in Islamabad.
According to the minister, institutions have already been mandated to work on the proposed instrument. However, the government has not yet disclosed its expected size, maturity or issuance timeline.
Government Seeks to Reduce Reliance on Banks
Aurangzeb stressed that relying heavily on banks to meet the government’s borrowing requirements is not sustainable over the long term.
The government is therefore looking to deepen Pakistan’s debt capital market and attract a wider range of institutional investors, including insurance companies and non-bank financial institutions.
A broader investor base could give the government more options for raising funds while reducing pressure on commercial banks to absorb a large share of public-sector borrowing.
New Bond Comes After $3 Billion Eurobond
The announcement follows Pakistan’s successful return to international debt markets with a $3 billion Eurobond issuance.
The government raised $1.75 billion through a 5.5-year bond carrying a 7.5 per cent coupon and another $1.25 billion through a 10-year bond with a 7.9 per cent coupon.
The transaction attracted nearly $6 billion in orders from institutional investors across global markets, highlighting strong demand for Pakistan’s latest international debt offering.
The strong order book has provided the government with an opportunity to explore additional financing structures beyond conventional Eurobonds.
Pakistan Looks to Broaden Its Investor Base
The proposed rupee-linked, dollar-settled instrument is part of a wider effort to diversify Pakistan’s capital-market investor base.
Aurangzeb said the government needs to develop debt capital markets that can attract investors beyond traditional banking institutions.
The Ministry of Finance has also been working to broaden retail access to government securities. The minister said the ministry had collaborated with JazzCash, while the State Bank of Pakistan had launched an application allowing individuals to invest directly in government securities.
These measures could gradually expand participation in government debt and create additional channels for mobilising domestic savings.
Government Explores Tokenisation of Eurobonds
Pakistan is also examining newer financing mechanisms, including the potential tokenisation of some existing Eurobond debt.
Aurangzeb referred to Hong Kong’s experience with tokenised financial instruments and said Pakistan had attempted to explore a similar approach for part of its existing Eurobond debt.
If developed successfully, tokenisation could offer another route for improving access to government securities and modernising the country’s debt-market infrastructure.
Foreign Exchange Reserves Target Set at $21 Billion
The finance minister also provided an update on Pakistan’s foreign exchange position.
According to Aurangzeb, foreign exchange reserves stood at $18.4 billion as of June 30, with the government targeting $21 billion by the end of the current fiscal year.
He said reaching that level would provide a little more than three months of import cover, which he described as a good international benchmark.
The reserve target is particularly important as Pakistan continues to manage external financing requirements and maintain stability in its balance of payments.
US-Iran Conflict Remains an Economic Risk
Aurangzeb also said the government was closely monitoring the ongoing US-Iran conflict because of its potential impact on Pakistan’s growth and inflation projections.
Geopolitical tensions can affect Pakistan through higher energy prices, supply-chain disruptions and increased pressure on external financing requirements.
For policymakers, maintaining adequate foreign exchange buffers and diversifying financing sources therefore remains important as global risks remain elevated.
A Shift Toward More Diversified Financing
Pakistan’s latest borrowing strategy suggests a broader effort to move beyond dependence on a single source of financing.
The successful $3 billion Eurobond has reopened international market access, while the planned rupee-denominated, dollar-settled bond could offer a different structure for attracting investors.
At the same time, efforts to bring insurance companies, non-bank financial institutions and retail investors into government securities could help build a deeper domestic capital market.
The success of these initiatives will ultimately depend on investor confidence, pricing, currency risk management and the government’s ability to maintain fiscal and external stability.