Pakistan is in the process of “restructuring and reorganising” its debt management process in line with global standards, said Finance Minister Muhammad Aurangzeb on Friday.
“In this regard, you will be hearing about various innovative funding products for domestic and as well as for international investors,” in the coming days, Aurangzeb said while addressing the Pakistan Stock Exchange (PSX) via a video link at the launch of Pakistan’s First Sovereign Domestic Green Sukuk worth Rs30 billion.
The launch of the Green Sukuk, a type of Islamic bond used to finance environmentally sustainable projects, is part of Pakistan’s domestic debt restructuring strategy. It was learnt that the finance ministry and the central bank have kick-started the process to make domestic debt restructuring sustainable. This includes converting short-term loans into longer tenure instruments and reducing large interest payments on the total debt to create fiscal space for development project spending.
“We (Pakistan) want to follow the Malaysian (debt management/restructuring) model and we can learn a lot from them and move in that direction,” said Aurangzeb, without giving much detail on the Malaysian model.
The restructuring of the domestic debt profiling was reflected in the recent buyback of T-bills and their replacement with low-cost and long-term debt instruments like Pakistan Investment Bonds (PIBs). Back in 2024, State Bank of Pakistan (SBP) Governor Jameel Ahmad said that the government’s reliance on short-term T-bills had dropped to 21% of the total debt mix, down from 24% and is expected to fall below 20% by the end of FY25.
Climate financing: Meanwhile, shifting his talk onto climate financing, Aurangzeb reiterated that climate change “is an existential threat for Pakistan”.
He said the required financing is available, but at the same time, “we are required to adopt concrete reform measures on climate.”
“One should never be complacent about the financing. Now the ball is in our court to come up with investable and bankable projects.”
The South Asian country, which in 2022 suffered catastrophic floods, has stepped up efforts to mobilise climate financing to mitigate the climate change threat.
Last week, the IMF Executive Board approved $1.3 billion in climate financing, i.e. Resilience and Sustainability Facility (RSF) for Pakistan. Last year in November, the country received $500 million in climate financing from the Asian Development Bank (ADB). Earlier this year, Islamabad inked a 10-year Country Partnership Framework with the World Bank to address climate challenges.
Meanwhile, PSX Chairperson, Dr Shamshad Akhtar, informed that Pakistan intends to issue both Green Sukuks and Green Conventional Bonds.
“Pakistan is required $348 billion in climate adaptation by 2030, which is beyond the capacity of traditional financing alone,” she said. Green Sukuks are seen as a gateway to the $4 trillion Islamic finance and $2.5 trillion green bond markets, she maintained.
With the country’s energy mix still heavily reliant on fossil fuels, i.e. 60%, experts believe Green Sukuks can support Pakistan’s transition to renewables.
Economic indicators improve: Advisor to the Finance Minister Khurram Schehzad also addressed attendees, highlighting signs of economic improvement.
He stated that Pakistan’s debt-to-GDP ratio has declined from 74% to 65%, while the tax-to-GDP ratio has increased to 10.6%, and is expected to reach 11% by the end of FY26. Schehzad shared that Pakistan plans to launch Panda Bonds by the last quarter of 2025 to access the Chinese capital markets.