Pakistan eyes first Panda bond issue before February 2026

Pakistan is eyeing the issue of its first Panda bond before February 2026 in a bid to re-enter the global capital market and raise funds to plug its financing gap.

Initially, Pakistan plans on issuing $250 million in Panda Bonds in the Chinese market. The move is part of a broader program with a total ceiling of $1 billion equivalent in RMB.

The Ministry of Finance has secured the support of two major multilateral institutions for the bond. The Asian Development Bank (ADB) will provide a guarantee of up to $160 million, while the Asian Infrastructure Investment Bank (AIIB) will provide up to $125 million.

In an interview with Arab News, Finance Minister Muhammad Aurangzeb said the credit enhancement has been approved by the ADB, while the AIIB is expected to follow shortly. He said regulatory clearances with China’s central bank and securities regulator were also progressing.

“I’m very clear we have to get it [Panda bond] done before the Chinese New Year,” the publication quoted Aurangzeb as saying. “So, it’s not late into 2026. It’s certainly well before CNY, which is going to be in February of this year.”

Taxation reforms

The minister also talked about Pakistan’s falling inflation, which has come down from a record level of around 40% in 2023 to around 6.2% in October.

Aurangzeb said falling inflation could result in a further reduction in the interest rate.

“If the inflation stays range-bound… the policy rate, during this fiscal year, can move into single digit,” he said about the policy rate, which is currently at 11%.

On taxation, the minister acknowledged that Pakistan’s tax base has been narrow, calling it “one of the biggest structural constraints” on the economy.

Pakistan’s narrow tax base results in lower tax collection, which forces the government to impose further taxes on the formal sector, making the cost of doing business in the country unsustainable.

According to data, Pakistan’s tax collector, the Federal Board of Revenue (FBR), fell short of its monthly collection target by PKR 74 billion in October. The authority provisionally collected PKR 952 billion in October, short of its monthly target of PKR 1,026 billion.

Aurangzeb told Arab News the tax-to-GDP ratio has increased to around 10.2% and the government was targeting 11% through a mix of enforcement, technology and inclusion of new sectors.

He said agriculture, retail and real estate made up a large share of Pakistan’s economy but contributed disproportionately to the overall revenue collection. “These are three areas which have been contributing very handsomely to the GDP, but have not been contributing to the exchequer in the same proportion.”

He pinned his hopes on the legislation on agriculture taxation passed by the provinces to generate revenue from the sector.

He stressed that enforcement would be gradual but the legislative breakthrough alone represented a historic correction to Pakistan’s tax architecture.

“First I was being told this can never be done,” he said. “It’s been done. Now people tell me it can’t be collected. Okay, one thing at a time.”

He said the government not only wants to raise revenue but address the structural imbalance that places a “disproportionate burden” on manufacturing and salaried workers.