Finance Minister Muha mmad Aurangzeb has, in private and public interactions, expressed satisfaction at the success of the 3 billion-dollar dual tranche Eurobond issuance (1.75 billion dollars for five and a half years at 7.50 percent and 1.25 billion dollars for ten years at 7.9 percent) – not only the single largest international bond offering in the country’s history which generated massive interest, reportedly up to 6 billion dollars, but also marked the country’s re-entry in the international bond market.
A historical perspective is in order: in December 2023 Pakistan’s caretaker finance minister, when asked, cited the skyrocketing global interest rates and critically high marginal borrowing costs for the decision to defer the November issuance of 1.5 billion-dollar international bonds. She further contended that Pakistan is a debt stressed country with approximately 74 to 75 percent of the Federal Board of Revenue (FBR) tax collections consumed by debt servicing and interest payments; and hinted, that the country’s rating had to improve prior to being offered an affordable bond yield. The country’s rating in February 2023 was speculative/junk territory – Fitch, Standard and Poor’s and Moody’s at CCC-, CCC+ and Caa3.
The Caretaker Finance Minister further added that the country had no option but to borrow from multilaterals, and that, in turn, would imply accepting the following harsh conditions: (i) raising electricity and gas tariffs to ensure full cost recovery and transferring their management to the private sector; (ii) institutionalizing the campaign against power and gas theft, (iii) adhering to the market determined exchange rate; (iv) responsive to adequate monetary policy adjustments particularly to core inflation; and (v) bring four state-owned entities in line with the governance template of the then newly-approved SOE law; notably, National Highway Authority, the Pakistan National Shipping Corporation (PNSC), the Pakistan Broadcasting Corporation (PBC), and the Pakistan Post.
So what has changed since 2023, given that all these conditions remain applicable today under the ongoing International Monetary Fund (IMF) programme? Pakistan’s rating today has improved — Standard and Poor B, Moody’s B3 and Fitch at B – highly speculative though as the Figure suggests it remains in the junk category (defined as higher risk of default that requires a higher interest rate to make the bonds more attractive). Today our rating is six rates lower than the investment grade level by Moody’s (as opposed to eight in 2023), Fitch at CCC- (against seven grades lower in 2023) and 5 grades lower for Standard and Poor (against six grades lower in 2023).
However, default risk is no longer imminent – a rating in 2023 associated with foreign exchange reserves of less than 2.9 billion dollars (attributed to the foolhardy policy decision to keep the dollar-rupee parity at a level that fuelled multiple exchange rates, which was violative of the agreement with the Fund leading to, first, failure to reach the ninth staff-level agreement due in the last quarter of calendar year 2022 and finally the formal suspension of the then ongoing Extended Fund Facility programme by end-June 2023).
It took three years and three programmes — 3 billion dollar Stand By Arrangement (approved mid-July 2013), 7 billion dollar Extended Fund Facility (approved in October 2024) and 1.4 billion dollars Resilience and Sustainability Facility (approved May 2025) — for the rating agencies to improve the ratings.
Empirical studies suggest that going on an IMF programmes unlocks assistance from multilaterals and bilaterals, thereby staving off the risk of default that leads to a rise in the country’s ratings. However, the Fund in its 10 October 2024 documents made damning remarks about successive governments’ adherence to reforms stipulated in its previous twenty-four programmes: “repeated efforts to reform, including under Fund-supported programs, were generally short-lived, and abandoned or reversed,” which prompted the Fund to not only set harsh upfront conditions, harsher than the 2023 policies highlighted by the Caretaker Finance Minister, but also require Pakistan to secure the necessary external funding from “friendly countries”, arguing that “continued strong financial support from Pakistan’s development and bilateral partners will be critical for the program to achieve its objectives.”
Saudi Arabia provided 3 billion dollars to Pakistan in 2021, rolled over each year since, though it agreed this year to roll over the amount for three years, beyond the end of the Fund programme next year. China extended 3.4 billion dollars (with total loans up to 29 billion dollars excluding the failure of the government to meet its contractual obligations for the energy projects set up under the umbrella of the China Pakistan Economic Corridor). And the UAE extended 2 billion dollar rollovers (though the Emirates withdrew the amount this year), which was then met by Saudi Arabia.
There is one condition for the rollovers/loans by the friendly countries: to remain on an ongoing Fund programme, reflecting little confidence in Pakistan’s intent to stay on the reform path.
Pakistan’s total debt is around 138 billion dollars today, and in spite of the fact that foreign exchange reserves of 21.4 billion dollars are largely debt based — an amount equivalent to only a little over three months of imports - the minimum recommended by multilaterals as the cost of imports is rising due to the Middle East conflict. However, with respect to issuance of 3 billion dollar Eurobonds the IMF in its 7 October press release noted the following: “sovereign rating upgrades and renewed international market access also point to stronger policy credibility. Nevertheless, risks remain high, particularly from geopolitical tensions, volatile energy prices, tighter global financial conditions, and trade disruptions.”
The question as to why the 3 billion-dollar dual tranche issuance of Eurobonds was such a success may only partly be due to domestic factors though the fact that Pakistan has never defaulted on its loans may have been a consideration, even as Pakistanis are pushed further and further into poverty – today 44.7 percent live below the poverty line as per the World Bank.
The answer may well lie in geopolitics that are slowly but inexorably altering the international world order with the West struggling to keep the yield on their bonds low – the US 10-year yield is close to 5.11 percent, UK 5.43, France 4.89 and Germany 3.48 percent – economies that are struggling with large deficits. European nations have in addition publicly expressed their intent to borrow with the stated objective of converting their civilian industrial base into a military base to enable them to go to war against Russia by 2030.
However, Pakistan’s historically close ties with China, evident during the war with India last year as well as our China-supported mediation efforts between US and Iran, backed by raising 250 million-dollar inaugural Panda bonds in May this year, with the intent to raise up to one billion dollars from this source, may have provided a further comfort level to the investors.
Copyright Business Recorder, 2026
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