Pakistan will issue yuan-denominated securities”panda bonds” as early as June, to further integrate its capital markets with those of China, a move that will help Beijing in its efforts to expand the use of the currency, the South Asian country’s finance minister said.
In an exclusive interview with The Post on Sunday, Muhammad Aurangzeb also pledged more cooperation with Beijing on the next phase of the project. China-Pakistan Economic Corridor (CPEC) – a key initiative to boost bilateral trade and investment.
He also called for greater participation of China’s private sector and export-oriented industries to transform Pakistan’s debt-ridden economy.
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Aurangzeb said Pakistan aimed to raise $200 million to $250 million from Chinese investors, adding that it was “absolutely essential” for the country to diversify its funding base.
The minister is in Hong Kong for the two days Asian Financial Forumwhich started on Monday.
“Since I took over [in March 2024]”, I have been very clear about this – that we want to go for panda bonds, a first sovereign panda bond… I urge everyone, including our own teams, to see if we can achieve this before June,” Aurangzeb said.
Panda bonds – typically denominated in yuan and issued in China by non-Chinese organizations, have gained traction as traders and countries seek to diversify away from their over-reliance on the US dollar, while exploiting the second largest economy in the world at attractive rates.
The minister added that Pakistan had followed Egypt’s example in issuing yuan bonds thanks to improved credit from the Beijing-led government. Asian Infrastructure Investment Bank (AIIB).
Last year, Egypt received guarantees from the AIIB and the African Development Bank, covering principal and interest, to issue panda bonds in the local mainland China market.
“I met the president of the AIIB in Washington (…) with a very clear vision that we are going to replicate what Egypt did in terms of credit enhancement (…) which allows us to access local capital markets for the panda bond,” he added. ” he said.
Aurangzeb added that Pakistan would help support “the internationalization of the renminbi” and strengthen cooperation with the “second largest and deepest capital market in the world.”
Despite its low credit rating, Pakistan would continue issuing Eurobonds in fiscal 2026. But Aurangzeb said his administration would strive for a “simple B” category for at least a large rating agency.
Pakistan has endured inflation for years and was pushed to the brink of default in 2023 as its economy withered into political chaos and economic mismanagement.
But the country’s economy rebounded last year, with the inflation rate falling from nearly 38 percent in May 2023 to 4.1 percent last month.
The International Monetary Fund and Pakistan also reached an agreement on an extended bailout loan of around $7 billion over 37 months, with some of the country’s largest debt holders, including China, agreeing last year to a one year refinancing.
Amid what he called the “balance of payments problem”, Aurangzeb said it would be crucial to strengthen cooperation under CPEC 2.0, adding that the latest version of a flagship project of the The Belt and Road Initiative would help the country digest its debt through an export-driven model.
CPEC is a key project of Beijing’s Belt and Road Initiative, with more than $65 billion pledged for Pakistan’s development, including roads and railways.
The second phase of the project, according to Pakistan, aims to create special economic zones in partnership with China to reform the country’s agricultural and IT sectors while incentivizing Chinese companies to relocate their low-end industries to the country.
During their meeting Last June, Chinese President Xi Jinping and Pakistani Prime Minister Shehbaz Sharif highlighted the upgrade of the CPEC project.
Aurangzeb said Pakistan was in trouble because the economy was “mainly import-driven”, which caused the country to “run out of foreign exchange and find itself in a balance of payments problem”.
Chinese President Xi Jinping and Pakistani Prime Minister Shehbaz Sharif met in Beijing last June. Photo: Reuters. alt=Chinese President Xi Jinping and Pakistani Prime Minister Shehbaz Sharif meet in Beijing last June. Photo: Reuters.>
“Which means we need to fundamentally change the DNA of the economy towards export-led growth,” he added.
“Phase two of CPEC is mainly about business-to-business trade, especially economic zones. We want to allow some companies from the continent to come and set up there and use it as a real export hub.”
“The first phase of CPEC was about infrastructure, and that’s where most of this debt comes in… [If] we move to phase two, where we look to export industries…we can create enough dollars and…pay off that debt,” he added.
Aurangzeb also vowed to step up security in his country to protect Chinese businesses amid a series of incidents. deadly attacks in the region, some targeting Chinese interests and personnel.
