The new government of Pakistan has been looking for ways to make money to help the economic situation of the country and to also repay Chinese loans as today, the trade deficit between the two countries has reached $12 billion. One of the ways by which they plan to do this is by launching the ‘Panda Bond’ as a way of raising money from foreign markets.
What is a Panda bond?
The Panda bond is a type of bond in denominated-Yuan currency which is meant to raise capital in the Chinese currency.
Normally, foreign organizations issue these Panda bonds, so they can raise money in Chinese markets, thus generating renminbi, proving to be especially beneficial for investors in China.
This method of raising capital was initiated in 2005 by the International Financial Corporation and the Asian Development Bank.
How it will benefit Pakistan?
This move has been undertaken after much consideration, and the government has met with several Chinese investors and other related organizations to determine if the move is beneficial towards the country’s financial state.
Furthermore, as the China Pakistan Economic Corridor is being set up, both the countries had planned on dealing with each other through Chinese currency, thus ensuring that the U.S Dollar isn’t used as frequently in the country. With the approval to issue Panda Bonds, it seems like this is becoming a reality.
— CPEC Official (@CPEC_Official) December 28, 2018
Most of the details regarding the Panda Bond’s issuance has been revealed through Dr. Khaqan Najeeb, the spokesperson of the Ministry of Finance. He has also gone on to reveal that the bonds will be issued in rounds, the size, tenor and pricing of which will be determined accordingly.
He believes that this is an effective way of diversifying the investor base and raising Renminbi, the Chinese system of currency. He also revealed that the size of the bond hasn’t been discussed with the Cabinet before their approval, but it is expected to be around $500 million, in two tranches.
Analysts have discussed how this could benefit the country:
— ViewPoint (@viewpoint_net) December 28, 2018
Earlier, the Philippines have also used a similar method of paying off their loans, by raising RMB1.46 billion, thus proving the effectiveness of the method.
China’s onshore bond market has been flourishing in recent years, and their bond market is the third largest in the world.
The Cabinet’s approval has come as a relief for the government, as they are looking for ways to prevent having to take IMF’s strict bailout package, by asking from assistance from countries such as China, Saudi Arabia, and UAE.