Pakistan signs '$1b' loan facility

New bond does not pay interest every year; investors receive a lump sum at the end of 15 years

ISLAMABAD:

The Ministry of Finance signed a five-year long-term financing facility for $1 billion, the government said in a statement on Wednesday.

Dubai Islamic Bank (DIB) served as the sole Islamic global coordinator, while DIB and Standard Chartered Bank acted as mandated lead arrangers and bookrunners.

"The Ministry of Finance has signed a syndicated term finance facility of $1,000 million partially guaranteed by a Policy-Based Guarantee of the ADB Programme 'Improved Resource Mobilisation & Utilisation Reform'," according to a press release.

"The facility is a landmark transaction for the Government of Pakistan that demonstrates strong support from leading financiers in the region. This is a five-year multi-tranche facility including both Islamic and conventional tranches," it said.

The finance ministry said that the Islamic facility was structured to be fully compliant with AAOIFI standards, and accounts for 89 per cent of the total financing amount, and the remaining 11pc was from conventional financing.

It added, "The transaction was also the first facility supported by ADB's Policy-Based Guarantee linked to policy reform measures undertaken by an ADB Member Country, i.e Pakistan."

"The ADB programme is designed to support Pakistan to build long-term fiscal resilience and stability and has supported Pakistan's re-entry into international commercial markets, with significant interest from Middle Eastern Banks," the press release read.

Meanwhile, the ministry announced that it successfully raised over Rs1.2 trillion through a major auction of government bonds held on Wednesday.

This includes the launch of a new 15-year Zero Coupon Bond, the first of its kind in Pakistan, which received strong demand from investors and raised over Rs47 billion.

This new bond does not pay interest every year. Instead, investors receive a lump sum at the end of 15 years. This helps the government reduce short-term repayments and plan finances better. The strong response shows that investors are confident in Pakistan's economy and reforms.

This move is part of the government's broader strategy to reduce borrowing risks, extend the repayment period of debt, and promote Islamic and long-term financial products. Yields on other government bonds also dropped, indicating optimism in financial markets about falling inflation and lower interest rates in the future.

Pakistan's debt is now becoming more stable. The average repayment period of domestic debt has increased from 2.7 years last year to 3.75 years now, reducing the pressure to repay loans quickly. Moreover, more pension funds and insurance companies—rather than just banks—are now investing in government bonds. This helps spread financial risk and deepen the local investor base.

Finance Minister Senator Muhammad Aurangzeb said: "This is a major step forward in making Pakistan's financial system stronger and more resilient. We are introducing new, smart ways of borrowing that reduce risk and give investors more options. Our aim is to manage public debt responsibly, promote Islamic finance, and attract more long-term investment to support the country's economic growth."

The Ministry of Finance is also working on more products to allow ordinary citizens to invest in government bonds, especially Islamic ones, to encourage savings and financial inclusion.

Despite global uncertainties, today's auction shows that Pakistan's economy is gaining investor trust and moving in the right direction.

With additional input from Irshad Ansari