Key points
- Final size and pricing depend on market conditions
- Move signals renewed access to global capital markets
ISLAMABAD: Pakistan has launched the process for a US dollar-denominated benchmark Eurobond offering through dual tranches with long five-year and 10-year maturities, the Ministry of Finance said on Tuesday.
The transaction will proceed subject to market conditions, with the government expected to gauge investor demand before determining the final terms, including the issue size and pricing.
The launch marks Pakistan’s return to international capital markets after a prolonged absence from the Eurobond market.
Pakistan last tapped the market in 2021, according to earlier government plans and reports on its borrowing strategy.
The move follows a series of improvements in Pakistan’s sovereign credit profile.
On August 24, Moody’s upgraded Pakistan’s sovereign rating to B3 from Caa1 and retained a stable outlook. The international rating agency cited improved governance, stronger foreign-exchange reserves, easing external vulnerabilities and better fiscal metrics.
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Moody’s said lower domestic financing costs and an improved fiscal position had also strengthened Pakistan’s debt affordability. However, it identified external and debt-related vulnerabilities as constraints on the country’s credit profile.
Eurobond diversifies financing
Pakistan’s Finance Division has previously described international bond issuance as part of its strategy to diversify external financing sources. Government data also show that Eurobonds and global Sukuk remain part of Pakistan’s external debt-servicing obligations.
The latest offering is therefore significant beyond the immediate fundraising exercise. According to officials, successful market access could provide Pakistan with another source of foreign-currency financing and establish a benchmark for future international debt issuance.
The government has not yet announced the final amount to be raised, coupon rates or issue dates. Those terms are expected to depend on market conditions and investor appetite.
Pakistan’s external capital market access
Pakistan’s access to international capital markets historically remained tied to its external financing position.
Foreign exchange reserves and investor confidence have always reflected in the country’s economic outlook.
Sovereign Eurobonds have been used periodically to raise foreign-currency financing, diversify funding sources and establish international benchmarks for Pakistani issuers.
Pakistan first entered the international bond market in 1997, followed by several sovereign bond transactions over the subsequent decades.
The country has issued both conventional Eurobonds and Islamic Sukuk, allowing the government to tap different segments of the international investor base.
These instruments have also provided pricing benchmarks for Pakistani banks and corporations seeking access to overseas debt markets.
The country’s most recent major sovereign Eurobond transaction was conducted in 2021, when Pakistan raised US$2.5 billion by offering three tranches with maturities of five, 10 and 30 years.
The transaction came amid strong international liquidity and relatively favourable borrowing conditions for emerging markets.
Access subsequently became more difficult as Pakistan faced mounting external financing pressures, declining foreign-exchange reserves, political uncertainty and rising global interest rates.
The international market environment also deteriorated sharply after the US Federal Reserve began raising interest rates, increasing the cost of dollar-denominated borrowing for emerging-market sovereigns.
Pakistan’s external financing position came under particular pressure in 2022 and 2023, raising concerns over its ability to meet large external debt repayments and maintain adequate foreign-exchange liquidity.
The government consequently relied more heavily on multilateral and bilateral creditors, including the International Monetary Fund, China, Saudi Arabia and the United Arab Emirates, rather than seeking expensive commercial financing in international bond markets.
The situation began to change as Pakistan stabilised its external accounts, implemented fiscal and monetary measures and secured a new IMF programme.
The State Bank of Pakistan’s foreign-exchange reserves also recovered from critically low levels, reducing immediate external liquidity pressures.
More recently, upgrades from major international credit-rating agencies have strengthened the government’s case for re-entering global debt markets.
The improved ratings, combined with greater macroeconomic stability and lower perceived default risk, can potentially broaden the pool of investors willing to hold Pakistani sovereign debt.
The latest US dollar benchmark Eurobond initiative therefore represents more than a single borrowing exercise.
