Pakistan plans rupee-based, dollar-settled bond, says Aurangzeb

Pakistan is preparing to introduce a new borrowing instrument in a bid to diversify its financing sources and reduce the government’s heavy

ISLAMABAD: Pakistan is preparing to introduce a new borrowing instrument in a bid to diversify its financing sources and reduce the government’s heavy dependence on domestic banks.

Finance Minister Muhammad Aurangzeb said on Friday that the government plans to issue a rupee-denominated bond that would be settled in US dollars.

He said financial institutions had already been appointed to work on the proposed instrument.

“We have already mandated institutions who are going to work with us on this,” Aurangzeb said while addressing a national dialogue on public-private partnerships and privatisation organised by the Asian Development Bank in Islamabad.

The minister did not disclose the proposed bond’s size, maturity period or expected launch date.

The plan comes soon after Pakistan successfully raised $3 billion through a two-tranche Eurobond issue.

The government secured $1.75 billion through a 5.5-year bond carrying a 7.5% coupon rate. It raised another $1.25 billion through a 10-year bond with a 7.9% coupon.

The issue attracted nearly $6 billion in orders from institutional investors across international markets, reflecting strong demand for the securities.

Aurangzeb said Pakistan now needed to broaden its sources of financing instead of relying heavily on the domestic banking sector.

He described the current level of dependence on banks to meet government borrowing requirements as unsustainable.

The finance minister said the government was working to strengthen Pakistan’s debt capital market and expand the country’s investor base.

He said greater participation from insurance companies, non-bank financial institutions and other institutional investors was needed.

The objective, he added, was to gradually reduce the concentration of government borrowing within the banking system.

The government is also working to make government securities more accessible to individual investors.

Aurangzeb said the Ministry of Finance had worked with JazzCash to improve retail access, while the State Bank of Pakistan had introduced an application through which individuals can invest directly in government securities.

The government is also examining new financing methods, including the use of blockchain-based technology.

Aurangzeb said Pakistan was exploring the possibility of tokenising some of its existing Eurobond debt, following a similar initiative in Hong Kong.

The move could form part of broader efforts to modernise Pakistan’s capital markets and introduce new channels for investors.

Aurangzeb said Pakistan’s foreign exchange reserves had reached $18.4 billion as of June 30.

The government is targeting reserves of $21 billion by the end of the current fiscal year, he added.

According to the minister, the current reserve position provides slightly more than three months of import cover, which he described as a key international benchmark.

Aurangzeb also said Islamabad was closely monitoring the ongoing US-Iran conflict and assessing its potential impact on Pakistan’s economic outlook.

He said the government was particularly watching the possible effects on economic growth and inflation.