Adviser to the Prime Minister on Finance Khurram Schehzad boasted on X Monday past that Pakistan raised an additional 250 million dollars from international investors by exercising the green shoe option (defined as an issuer increasing the bond size to meet high investor demand and to stabilise the bond price in the secondary market which, in turn, distinguishes the face value of a bond from its market value), which took the total size of the Eurobond issuance to 750 million dollars.
The maturity date is April 2029, the sole bookmaker under Pakistan’s Global Medium-Term Note (GMTN) programme was Standard Chartered, and the objective of the issuance was to partly replace the repayments to the United Arab Emirates (4.5 billion dollars by the end of this month) at the same mark-up — 6.975 percent. The repayment at this rate would be 52.31 million dollars each of the three years or a total of 156.9 million dollars by April 2029 at which point the government would have to repay the principal amount of 750 million dollars.
Pakistan has never defaulted on its external loans and the Adviser was quick to point out that Pakistan repaid 1.3 billion dollar Eurobond maturing on 8 April and another 126.125 million dollars in coupon obligations on other Eurobond issuances, adding that “debt servicing continues to be executed as a non-event – reflecting consistency, discipline and strengthened capacity.” He failed to mention that debt servicing constituted 8,206,667 million rupees, accounting for 47 percent of the total 2025-26 budget, which is expected to be higher as the projected decline in the policy rate by December 2025 has not materialised.
Be that as it may, the Adviser’s boast has merit as previously borrowing from the equity market had to be deferred due to the very high interest rate acceptable to prospective investors: in December 2023 the policy rate was a high of 22 percent which prompted the then caretaker Finance Minister Shamshad Akhtar to state that the country could not afford to borrow at the rate on offer. This was in spite of the fact that the country was on a nine-month-long harsh upfront International Monetary Fund (IMF) programme (July 2023 till after the scheduled elections in March 2024). The situation has since eased with the policy rate at 10.5 percent and inflation that had peaked at 38 percent in 2023 declined to 7.3 percent year-on-year last month. However, the Sensitive Price Index is on the rise due to oil supply disruptions as a consequence of the continuing Middle East crisis.
The Adviser further stated that the plan is to “select underwriters and advisers across three different funding structures”, which are as follows: (i) consortium 1 shall comprise up to five conventional international financial institutions appointed as joint lead managers, underwriters, and book runners for the issuance of Eurobonds. The consortium shall be jointly responsible for structuring, pricing, underwriting, syndicate management, investor outreach, roadshows, book-building and allocation, ensuring broad international distribution and high-quality order books; (ii) Consortium 2 will comprise up to five international financial institutions, including at least one international Islamic financial institution to act as joint lead managers, underwriters, and book runners for the issuance of international Sukuk; and (iii) Consortium 3 shall comprise up to three international financial institutions to be appointed as joint lead managers for a PKR-denominated, USD-settled international bond under the GMTN Programme.
Documents shared by the Finance Division’s debt management office reinforced the Adviser’s comment notably that the “the Ministry of Finance will decide as and when we will tap the market, based on the external funding requirements, over the next three years;” and provided further details notably that “the timing of the issuance of instruments shall depend on prevailing market conditions, as advised by the selected transaction advisers, and be subject to Pakistan’s funding requirements. The size of each issuance will depend on market conditions at the time of execution. The selected consortiums will be required to structure, advise, manage, coordinate and execute the whole range of activities associated with these programmes.”
The external funding requirements as per the December 2025 IMF second review report on the ongoing 7 billion-dollar Extended Fund Facility programme are 19.398 billion dollars in the current year, projected to decline slightly next fiscal year to 19.123 billion dollars and rising to 29.914 billion dollars in 2027-28. July-February 2026 figure uploaded on the Ministry’s website reveals that total borrowing inflows (multilateral/bilateral assistance/IMF/ commercial banks) was 5,862.05 million dollars and if one adds the 9 billion dollar roll-overs from China and Saudi Arabia we are still short of the total requirements, which may explain the thrust towards equity borrowing.
These projections are not in synch with the Prime Minister and Finance Minister’s claim that the ongoing programme scheduled to end in 2027 would be the last one that the country intends to secure.
The ease of making the annual payments and final repayment of the principal would depend on multiple factors, including the source of foreign exchange reserves (that at present are largely debt based), whether, unlike at present, exports pick up at a faster rate than imports, remittance inflows continue to rise (though the expectation is that they will be negatively impacted due to the Middle East conflict) and whether the administration slashes its current expenditure (particularly non-operational expenses), thereby reducing the need to borrow.
The question therefore remains: is investor confidence that enables the government to tap the equity market a measure of the economy’s resilience or merely a continuation of the begging bowl syndrome that has been the preferred policy option by successive Pakistani administrations – civilian and military. A partisan response is more often than not the approach taken by political responders however a non-partisan perspective dictates that the government first implements a major reduction in current expenditure through: (i) a wage freeze on the 7 percent of the total employed in this country who are paid at the taxpayers’ expense; (ii) pension reforms (with employee contributions); (iii) ensuring that subsidies are targeted to the poor and vulnerable (identified in the Benazir Income Support Programme); and (iv) instead of the entire focus being on privatization of distribution companies as a means to reduce power sector inefficiencies, deferred due to lack of investor interest as well as employee protests, to end the flawed tariff differential policy that allows even a 2005 privatized company like K-Electric to receive 125 billion rupees in annual subsidy to this day.
To conclude, a decline in current expenditure by at least 2 trillion rupees in next year’s budget would lower the need to sustain severely anti-growth contractionary fiscal and monetary policies that are currently in place due to IMF insistence.
Copyright Business Recorder, 2026
Comments