Pakistan explores Sukuk to diversify borrowing, extend debt maturities

Pakistan is seeking to diversify its borrowing sources and replace costly short-term debt with longer-maturity financing, as Finance Minister Muhammad Aurangzeb discussed potential Sukuk issuance and other funding options with Sharjah Islamic Bank on the sidelines of the World Bank Group-International Monetary Fund Annual Meetings.

The talks focused on easing repayment pressures, broadening access to international capital markets and attracting investment without increasing Pakistan’s overall external debt, the Finance Division said in a statement on Saturday.

The Sharjah Islamic Bank delegation reaffirmed its support for Pakistan and expressed readiness to participate in a Sukuk issuance, the statement said, without disclosing a potential transaction size or timeline.

Aurangzeb highlighted improvements in Pakistan’s fiscal and external indicators, stronger foreign exchange reserves, credit rating upgrades and progress under the International Monetary Fund programme while discussing the country’s financing outlook with the delegation.

The two sides discussed several funding options, including prospective Sukuk, rupee-denominated instruments settled in dollars, additional Panda bonds in China’s domestic market and the possible tokenisation of Eurobonds.

The finance minister stressed the need to extend debt maturities and spread repayment obligations more evenly, while also discussing financing backed by the Multilateral Investment Guarantee Agency and the impact of rising global funding costs.

The discussions come as Pakistan seeks to reduce refinancing risks and broaden its funding base by tapping different instruments and investor markets. Longer-term financing could help spread repayment obligations over time, although the terms and costs of any potential transactions were not disclosed.

Aurangzeb also highlighted investment opportunities in refinery upgrades, the privatisation of power distribution companies and airport outsourcing.

The meeting also explored ways to develop capital market benchmarks through financial institution issuances and expand lending to businesses, small and medium-sized enterprises and the agriculture sector.