Pakistan Seeks $1.4B Lifeline from China—Panda Bonds Loom
Cash-strapped Islamabad knocks on Beijing’s door—again—for a currency swap extension while eyeing a debut in China’s bond market. Because nothing says ’financial stability’ like doubling down on your largest creditor.
Panda bond plans signal desperation meets innovation—or just another sovereign debt Hail Mary. Will yuan-denominated debt buy time, or just delay the inevitable reckoning?
Pakistan pushes for more support while managing new tensions
China has been pushing swap agreements with several emerging economies, including Argentina and Sri Lanka, and now Pakistan is trying to extend its arrangement to keep up with growing financial needs. Muhammad said the plan to issue the Panda bond fits into Pakistan’s broader strategy to tap new markets and avoid overreliance on traditional lenders.
On the international aid front, Muhammad said he expects the IMF executive board to approve Pakistan’s new $1.3 billion deal under a climate resilience loan program in early May. This approval will also cover the first review of the country’s existing $7 billion bailout package.
Once the IMF board signs off, Pakistan will immediately unlock a $1 billion payout, a vital piece of the financial plan Pakistan secured in 2024 to prevent a full-blown economic collapse.
Asked about the effects of escalating tensions with India, Muhammad said it would be “not helpful” for Pakistan’s economic outlook. Earlier this month, after the killing of 26 men at a tourist site, both countries retaliated. Pakistan shut its airspace to Indian airlines and froze trade ties.
India responded by suspending the 1960 Indus Waters Treaty, which controls how water from the Indus River system is shared. Muhammad pointed out that even before the latest dispute, trade between the two countries had already shrunk massively, totaling just $1.2 billion last year.
Turning back to the domestic economy, Muhammad forecasted that Pakistan would hit about 3% growth for the financial year ending in June 2025. He said the country is aiming for growth of 4-5% the following year, with longer-term hopes of reaching 6%.
He emphasized that expanding financial sources like the Panda bond, enlarging the swap line, and securing IMF funds are all pieces needed to hit those targets.
Meanwhile, amid Pakistan’s strengthening relationship with China, US Treasury Secretary Scott Bessent met with Asian Development Bank President Masato Kanda on Friday. Bessent pressed Kanda to start moving China toward “graduation” from ADB borrowing, arguing that China’s economy no longer needs the same level of development bank assistance.
The Treasury Department said Bessent also pushed Kanda to focus on “best value” procurement practices and pointed out the need for an “all-of-the-above energy strategy,” including financing options for civilian nuclear power projects.
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