ISLAMABAD: The government will launch domestic green Sukuks and Panda Bond in the Chinese market, revealed a semi-annual debt bulletin of the Finance Ministry.
The December 2024 report showed that Pakistan’s external debt fell to 32.6 per cent, well below the 40 per cent upper limit set under the Medium-Term Debt Strategy (MTDS). This decrease was mainly due to a net outflow of USD 725 million.
The report further reveals that domestic debt remains the primary source of financing the fiscal deficit, constituting 67 per cent of total debt as of December 2024.
Rs20bn Green Sukuk likely in Dec
Key shifts in domestic debt include: Permanent Debt: Increased from 70 per cent to 75 per cent as the government extended maturity profiles, with Pakistan Investment Bonds (PIBs) leading the share.
Sharia-compliant securities also rose from 10 per cent to 12 per cent.
Floating Debt: Short-term borrowing through Market Treasury Bills (MTBs) declined from 20 per cent to 17 per cent as PKR 1.4 trillion in MTBs was retired.
Unfunded Debt: Contributions from National Savings Schemes (NSS) dropped to six per cent.
Additionally, the share of scheduled banks in tradeable government securities decreased from 62 per cent in June 2024 to 55 per cent in December 2024, while the non-banking sector’s share rose from 18 per cent to 25 per cent.
According to the report ‘Domestic Borrowing Operations (1HFY-25)’ the fiscal deficit was financed mainly through domestic sources.
Interest expenses totalled PKR 5.1 trillion, with 90 per cent attributed to domestic debt. Government policies helped achieve a federal primary surplus of PKR 2.8 trillion, resulting in a fiscal deficit of PKR 2.3 trillion.
PKR 1,504 billion worth of short-term treasury bills were retired.
Fixed-rate PIBs worth PKR 1,267 billion were issued against PKR 1,153 billion in maturities.
Floating-rate PIBs worth PKR 4,929 billion were issued against PKR 1,863 billion in repayments.
Government Ijara Sukuk (GIS) issuance stood at PKR 1,302 billion, while PKR 378 billion matured. National Savings Schemes net inflows reached PKR 89.1 billion.
Pakistan’s external public debt stood at USD 86.6 billion as of December 2024, reflecting a 1.3 per cent decline from December 2023 due to repayments to bilateral creditors.
Notably, foreign investment in domestic debt securities surged, with non-resident holdings rising to USD 782 million in December 2024, compared to just USD 4 million a year earlier.
The report says that Composition of External Debt, and Multilateral and Bilateral Loans, forming 56 per cent and 27 per cent of external debt, respectively, these are largely concessional in nature.
Bilateral Deposits: Representing 10 per cent, with China and Saudi Arabia providing short-term budgetary support.
Foreign Commercial Bank Loans making up 7 per cent of external debt, these loans have market-based interest rates and short- to medium-term tenors.
Eurobonds and Sukuk: Accounting for 8 per cent, these instruments offer long-term financing at market rates.
The government issued new guarantees, including roll-overs of existing guarantees, aggregating to PKR 318 billion. This constitutes 0.26 per cent of GDP which is well below the flow ceiling of two per cent imposed by the Fiscal Responsibility and Debt Limitation Act, 2005.
The government is actively pursuing sustainable financing solutions, including the issuance of domestic green Sukuks, to support environmentally responsible projects and diversify funding sources. As part of this initiative, it plans to issue a Domestic Listed Green Sukuk in CY25.
In order to address the asset dependability of Sukuk issuances, deliberations are in finalization stages with stakeholders on structure of asset-light Sukuk structure. Additionally, the government is exploring various external financing avenues to diversify its creditor base.
Preparations are under way to issue its inaugural sustainable Panda Bond in the Chinese market, leveraging the comparatively lower yields and financing costs available. Also, a Sovereign Sustainable Finance Framework to attract green and climate-related financing is in finalisation. This framework aims to attract capital for projects that promote climate resilience, foster social inclusion, and drive sustainable economic growth.
Approximately 55 per cent of the guarantees are issued for the power sector entities followed by commodity operations with 20 per cent.
The significant increase from December-23 to December-24 is attributed to the inclusion of guarantees issued against commodity operation financing obtained by SOEs (TCP and PASSCO), which were mentioned separately in past reports.
Copyright Business Recorder, 2025
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