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Friday February 14, 2025

Pakistan set to issue first-ever $200m panda bonds in June

Bonds come as Pakistan celebrates its 75th anniversary of diplomatic relations with China

By Israr Khan & Khalid Mustafa
January 20, 2025
A person counting Pakistani currency note.— AFP/File
A person counting Pakistani currency note.— AFP/File

ISLAMABAD: Pakistan plans to issue its first-ever panda bonds in June 2025, marking a significant step toward strengthening its financial relationship with China.

The yuan-denominated bonds, to be issued in China’s capital markets, aim to raise $200 million, diversify Pakistan’s foreign exchange exposure, and attract Chinese investors.

“We just want to make sure that we are also present in the second largest and second deepest capital market in the world,” Finance Minister Muhammad Aurangzeb said this while speaking to Hong Kong-based TVB news channel.

He hoped the new “export-led” model would help buoy his country’s economy, it reported.

The bonds come as Pakistan celebrates its 75th anniversary of diplomatic relations with China.

Panda bonds, typically issued by non-Chinese entities to tap into China’s investor base, are expected to complement Pakistan’s efforts to reduce its reliance on the US dollar while creating new avenues for external funding.

Pakistan has faced severe economic turbulence in recent years. In mid-2023, inflation reached a record 38 percent, and the country teetered on the brink of default.

Since March 2024, the Government of Pakistan has implemented reforms under the IMF’s program that have brought inflation down to 4.1 percent as of December 2024. Despite the progress, Pakistan continues to grapple with the high debt levels.

Aurangzeb expressed the hope that the second phase of China Pakistan Economic Corridor (CPEC 2.0) would play a key role in stabilizing the economy.

CPEC, a flagship program of China’s Belt and Road Initiative, has already seen significant investments in infrastructure and energy projects across Pakistan. CPEC 2.0 is expected to catalyze industrial and technological growth. He hoped it could help woo more Chinese companies and encourage investment in Pakistan.

“We are very focused on fundamentally changing the DNA of the economy to move towards export-led growth for that market-efficient FDI coming into Pakistan because that is what is going to give us sustainability in terms of our overall ‘balance of payment’ situation in the country,” he said.

While in Hong Kong, for a two-day Asian Financial Forum, Aurangzeb met with Chief Executive John Lee to discuss ways to enhance financial collaboration between the two regions.

The finance minister invited Hong Kong delegations to visit Pakistan and explore trade and investment opportunities.

“Hong Kong, I think, can be a very good destination for a lot of joint ventures between China and Pakistan to come and do their listings on the stock exchange, either on the primary side or in terms of secondary listings,” Aurangzeb said.

Panda bonds are part of Pakistan’s broader effort to secure financial stability and expand international partnerships.

As the country works towards rebuilding its economy, closer financial ties with China and Hong Kong could open up new opportunities for investment and growth.

Meanwhile, the government is in the process of carving out a plan to auction off cheaper surplus electricity to bulk consumers for 2-3 years. “Under the plan, we will first fix the reference price of electricity and interested parties would be asked to come up with bids for surplus electricity not less than the reference price,” senior officials of the Energy Ministry told The News.

The officials of Central Power Purchase Agency (CPPA) and National Transmission Dispatch Company (NTDC) are also currently working on the implementation mechanism and reference price.

This will also help tackle the monster of capacity payments. The installed capacity of the country has reached 45,888 MWs. The peak summer demand stands at 29,000 MWs, but the system is not able to transmit 29,000 MWs of electricity, rather it is able to transmit 26,000 MWs power. However, the average per month demand stands at 11,000-12,000 MWs. We need to increase the demand of grid electricity in all the months across the country.

The major client can be the industrial sector for getting surplus power at an auctioned price for 2-3 years. The country has cheaper electricity in its southern part which cannot be transmitted to the north Punjab, the load center, mainly because of transmission constraints, but the government is paying capacity payments of even cheaper power which is available but cannot be evacuated.

So the surplus power can be offered to clients at auctioned prices and this is how the government would reduce the burden of capacity payments and surplus electricity would be brought in use.

“We are also working on the creation of a wholesale private power market by March-April to be followed by the retail private power market. Once the CTBCM is in place and becomes functional, the government would not purchase electricity from the IPPs which signed the revised contracts on take and pay basis. They would be free to join the CTBCM (competitive trading bilateral contract market).”

This could be a paradigm shift in the existing power sector structure. Under this competitive regime, there would be a system of multi-sellers and multi-buyers of electric power. However, the buyers will pay the transmission and distribution use of system charges also for the electricity they will trade bilaterally. Currently, the power sector investments are dominated by the government that also owns power plants and sells electricity to end consumers under a monopoly structure through its Discos having control on the network and supply business.

The consumers have no choice but to purchase electricity from the government-owned Discos. So under the new competitive market implementation, bulk electric power consumers will be able to buy electricity from any private supplier, traders and generation companies at the electric power rates bilaterally agreed by parties with no Nepra determination involved and after including the wheeling charges as determined by Nepra for the use of transmission and distribution.