Newly appointed Finance Minister, Muhammad Aurangzeb, has expressed optimism for improvement in economic development as well as stability in the value of the rupee. He has also forecast growth rate to be better in the next financial year.
The minister expressed these sentiments in an interview with Bloomberg, conducted at his office in Islamabad. He has also expressed eagerness to tap into Chinese investors' market by selling Panda bonds worth up to $300 million for the first time this year.
In the interview, Aurangzeb emphasized that issuing yuan-denominated debt would enable Pakistan to diversify its funding sources and access investors in a new market. He noted that China possesses the "second-largest and deepest bond market in the world," making it a strategic move for Pakistan to enter this market, especially considering the country's previous issuances of dollar and eurobonds.
Aurangzeb revealed that the initial Panda bond sale is anticipated to range between $250 million to $300 million, with plans for subsequent issuances in the future.
The finance minister, who formerly served as a banker at JPMorgan Chase & Co., was appointed by Prime Minister Shehbaz Sharif in March amidst a period of economic uncertainty in Pakistan. Facing challenges such as record-high economic pessimism and the risk of defaulting on its debt, Pakistan seeks to navigate its fiscal landscape cautiously.
Pakistan has the highest inflation rate in Asia of more than 20% and faces $24 billion of external debt payments in the fiscal year starting July, three times its foreign-exchange reserves.
Aurangzeb reassured that the government's cash reserves are robust enough to meet its debt obligations on time without exerting pressure on the currency. He expressed optimism regarding the stability of the Pakistani rupee, despite the country's high inflation rate and external debt obligations.
“I don’t really see a huge pressure on the rupee at this point in time,” he said. “As we go forward, I think it’s going to remain range bound around these levels.”
The “wildcard” is oil prices, he added, which remain uncertain given the Red Sea attacks.
Negotiating new loans with the International Monetary Fund (IMF) remains a pressing challenge for Aurangzeb. Pakistan aims to secure a new medium-term program to address fiscal and external vulnerabilities and bolster economic recovery.
However, analysts anticipate that the IMF program will be much tougher than previous loan agreements, potentially requiring the minister to raise electricity and gas prices, and look for ways to increase revenue from retail and real estate, which have remained undertaxed in the past.
Aurangzeb disclosed Pakistan's intention to pursue a new IMF loan program lasting at least three years, with further discussions to be held following the IMF's annual spring meetings.
Panda bonds, yuan-denominated instruments sold in China by offshore issuers, offer a lower cost of borrowing and have attracted issuers from various countries, including Egypt and Hungary. The growth in Panda bond issuance is expected to rise significantly in 2024, presenting an attractive financing option for Pakistan amidst its economic challenges.
