Pakistan is currently working on restructuring its debt management system in line with global standards, announced Finance Minister Muhammad Aurangzeb. The country is introducing innovative funding products for both domestic and international investors, as part of its efforts to reform its debt structure.
The launch of the country’s first Sovereign Domestic Green Sukuk, valued at Rs30 billion, is a key component of Pakistan’s domestic debt strategy aimed at financing environmentally sustainable projects.
The Pakistani government intends to emulate Malaysia’s debt restructuring model, focusing on converting short-term loans into longer-term debt instruments to reduce the burden of high interest payments.
This move aims to create fiscal space for vital development projects. The restructuring process is already visible in actions like the replacement of short-term Treasury bills (T-bills) with lower-cost, long-term Pakistan Investment Bonds (PIBs). Pakistan is also working to further decrease its reliance on short-term debt.
Finance Minister Aurangzeb emphasized that climate change is an existential threat for Pakistan, which suffered catastrophic flooding in 2022. He reiterated that while financing is available for climate-related initiatives, Pakistan must focus on adopting concrete reforms to make its climate projects more investable.
To support this, the country is issuing Green Sukuks, which are seen as a gateway to the Islamic finance and green bond markets, to fund climate adaptation projects.
Khurram Schehzad, Advisor to the Finance Minister, highlighted that Pakistan’s economic indicators are showing signs of improvement. The country’s debt-to-GDP ratio has decreased from 74% to 65%, and the tax-to-GDP ratio has increased to 10.6%, with expectations that it will reach 11% by the end of FY26. These improvements signal a positive shift in Pakistan’s fiscal health, bolstering its economic recovery.
Pakistan also plans to issue Panda Bonds by the last quarter of 2025 to access the Chinese capital markets, diversifying its funding sources. The country’s efforts to secure climate financing continue with the recent approval of $1.3 billion by the IMF and $500 million from the Asian Development Bank. With an estimated $348 billion needed for climate adaptation by 2030, Pakistan is positioning itself to attract significant international investment to address its climate challenges.