By Qudsia Bano

Renewed international appetite for emerging-market debt is opening a fresh financing window for Pakistan, with experts urging Islamabad to use any return to global bond markets to refinance costly obligations, extend maturities and diversify funding rather than simply accumulate fresh liabilities.

Several emerging economies have recently accessed international markets to refinance expensive obligations, extend debt maturities and diversify funding sources. Pakistan is also preparing to broaden its market-based financing through Eurobonds, Islamic Sukuk, yuan-denominated Panda bonds and other instruments.

The potential financing window comes amid a gradual improvement in Pakistan’s sovereign credit profile. In July 2025, S&P Global upgraded Pakistan’s rating from CCC+ to B- with a stable outlook, citing improving reserves, fiscal stabilisation and continued support from official creditors. The upgrade also boosted the prices of Pakistan’s outstanding international bonds.

Pakistan demonstrated its repayment capacity in April 2026 by settling a $1.3 billion Eurobond at maturity, along with $126.125 million in coupon payments on other international bonds. Government officials described the payments as evidence of improved debt management and the country’s ability to meet external obligations on time.

The Ministry of Finance’s Annual Debt Review showed that Pakistan’s public debt stood at Rs80.6 trillion at the end of June 2025, equivalent to around 70% of GDP. The size and cost of the debt make the maturity, interest rate, currency exposure and intended use of any new commercial borrowing particularly important.

Pakistan’s external position has strengthened compared with the period of acute financing stress, but experts say substantial repayment requirements and exposure to external shocks mean renewed market access should primarily be treated as an opportunity to improve debt management rather than simply expand borrowing.

They say refinancing costly obligations, extending maturities and diversifying funding sources could make a return to international markets more beneficial, while the pricing and use of proceeds would ultimately determine whether fresh issuance strengthened Pakistan’s debt position or merely shifted repayment pressures into future years.

Speaking to Wealth Pakistan, Dr S. M. Naeem Nawaz, an economics professor at the Pakistan Institute of Development Economics and former fiscal director at the Finance Division, said global capital appeared to be looking again towards emerging markets.

For Pakistan, he said, this was particularly relevant because external financing had depended heavily on multilateral institutions, bilateral deposits and repeated rollovers in recent years. 

“An improvement in investor appetite could reopen the door to international bond markets. But the policy question is not simply whether Pakistan can borrow again. It is whether it can use the market to borrow better,” he said.

Dr Nawaz said renewed market access should be used to improve the composition of external debt. New bonds should preferably refinance expensive or short-maturity obligations, smooth the repayment schedule and reduce the concentration of large payments in individual years.

He cautioned that borrowing simply to finance routine expenditure or temporarily strengthen foreign exchange reserves could recreate vulnerabilities that had previously restricted Pakistan’s market access.

Longer maturities, competitive pricing and productive deployment of proceeds would therefore be more important than the headline size of an issuance, he said.

Pakistan has already taken a step towards diversifying its investor base through its planned Panda bond programme. The government has announced an initial yuan-denominated issuance equivalent to $250 million as part of a proposed $1 billion programme, supported by the Asian Development Bank and the Asian Infrastructure Investment Bank.

The government has also indicated that Eurobonds, Islamic Sukuk and dollar-settled rupee-linked instruments are under consideration. A broader mix of instruments could diversify funding sources, although foreign-currency and repayment risks would remain important considerations.

Awais Ashraf, Head of Research at AKD Securities, said improved access to emerging-market financing could support Pakistan’s reserves and reduce immediate dependence on repeated bilateral rollovers.

However, he stressed that the timing and pricing of any issuance would determine whether it genuinely improved the country’s financing position.
Ashraf said Pakistan should avoid issuing international debt merely to demonstrate its return to the market if investors demanded an excessively high yield.

A carefully sized transaction, backed by continued fiscal discipline, stronger reserves and progress under the International Monetary Fund programme, could establish a more credible pricing benchmark for subsequent sovereign and corporate borrowing, he said.

Credit: INP-WealthPk