Pakistan was jolted when the UAE refused to extend a $3 billion facility - something that hadn't happened in seven years. Saudi Arabia later plugged the hole with $3 billion in support to help meet the repayment. Islamabad then went shopping for market cash: $500 million came from a private bond sale in April, followed by its debut yuan-denominated issuance in China's onshore market, which was Pakistan's cheapest foreign-currency bond to date. The big swing came next - a record $3 billion junk-bond raise, helped by credit upgrades and warmer ties with the US administration led by President Donald Trump.
A ratings tailwind helped. Moody's raised Pakistan's rating last month, following S&P's upgrade in July, yet the sovereign remains far from investment-grade territory. The backdrop contrasts with earlier this year, as the Iran war sent oil prices surging and threatened a sharp drop in the import-reliant economy's foreign-exchange reserves. The improved backdrop, plus better relations with Washington, helped draw buyers back. As Waqas Ghani of JS Global Capital Ltd. put it, "In the near term, the proceeds would strengthen liquidity, improve reserve buffers and support the external account."
Finance Minister Muhammad Aurangzeb told attendees in Islamabad on Thursday, "Its all about repaying short-term expensive debt, extending our maturities and reducing our rollover risk." Pakistan has additionally requested that China refinance a $1.3 billion commercial loan, Business Recorder reported last month. China remains the country's largest creditor, with more than $25 billion owed, and Islamabad is now aiming to launch a new stage of the China-Pakistan Economic Corridor after roughly $60 billion in projects that were initiated more than a decade ago under the Belt and Road initiative.
Pakistan still plugs its external funding gap largely with short-term borrowings and deposits from friendly governments, which need frequent renewals. "This is risky and we saw UAE not rolling over their last loan," said Mohammed Sohail, Chief Executive Officer at Topline Securities Ltd. in Karachi. To widen its funding avenues, Islamabad has asked the US for a $10 billion facility and expects an answer within a couple of months, hoping to benefit from warmer relations with the Trump administration.
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Those relations have strengthened as Pakistan played a central mediation role in the US-Iran war. For your wallet, here is the bottom line: the country is buying time by boosting buffers and lengthening debt, but the funding model still demands constant upkeep and attention to energy prices.
