Pakistan is planning to raise Rs580 billion ($2.08 billion) from international bond markets in fiscal year 2026-27, a fivefold increase from the outgoing year’s target of Rs116 billion ($417 million), which Finance Minister Muhammad Aurangzeb says would gradually replace a portion of the country’s bilateral borrowing with market-based financing.
The government also plans to borrow Rs681.5 billion ($2.45 billion) from foreign commercial banks in FY27, which begins on July 1, according to budget documents. The planned issuances would take Pakistan’s next year’s commercial borrowing to $4.53 billion.
The proposed targets form part of the government’s strategy to secure Rs5.54 trillion ($19.9 billion) in foreign financing, a 26 percent increase from Rs4.41 trillion ($15.9 billion) targeted in the outgoing FY26. The South Asian nation needs billions of dollars in external financing each year to repay maturing debts, fund its balance-of-payments needs and maintain foreign exchange reserves, relying on a mix of multilateral lenders, bilateral partners and international capital markets. “Pakistan is considering further issuances of Panda Bonds, Eurobonds, US dollar-denominated bonds and its first rupee-linked, dollar-settled instrument,” Finance Minister Aurangzeb told Arab News on Saturday.
“Our objective is to explore whether a portion of bilateral financing can be replaced with commercial borrowing,” he said, adding that the sizes of bond issues have yet to be finalized. “We do not intend to increase the size of our external debt.”
The government has estimated its FY27 foreign debt repayment obligations at Rs1.1 trillion ($3.9 billion), 15 percent more than what it repaid in the outgoing fiscal year which ends on June 30. It may consider accessing commercial financing next fiscal year as part of its efforts to diversify its creditor profile, while keeping the overall level of external debt unchanged. The Pakistani planning ministry’s Annual Plan 2026-27 shows that Pakistan’s external debt rose 1.2 percent to $138 billion by March this year from $136 billion a year earlier. When asked, Finance Adviser Khurram Schehzad says it is not a shift, but an old plan aimed at “diversification of [the country’s] investor base.”
“It has been part of our earlier plans as well where we wanted to diversify our investor base,” Schehzad told Arab News on Saturday, explaining the rationale behind the plan to move to commercial borrowing from bilateral loans. Fiscal documents show the government has not budgeted any receipts under the Saudi Fund for Development (SFD) oil facility, the State Administration of Foreign Exchange (SAFE) deposit, or the Kingdom of Saudi Arabia (KSA) time deposit for FY2026-27. While the documents do not explain the omission, it could reflect a decision not to rely on additional bilateral financing during the next fiscal year. Islamabad has received billions of dollars in bilateral loans from Saudi Arabia, China and the United Arab Emirates (UAE) in recent years.
While Pakistan continues to hold more than $10 billion in deposits from Saudi Arabia and China, the UAE sought repayment of its $3.45 billion bilateral loan in April, prompting Islamabad to secure an additional $3 billion deposit from its longstanding ally Saudi Arabia to meet Pakistan’s external obligations. Economists say the government’s strategy to change creditor profile could lessen refinancing risks for Pakistan. “Pakistan’s move to replace short-term bilateral funding with market-based commercial borrowing reflects a more sophisticated debt management strategy rather than a push for higher debt,” said Muhammad Waqas Ghani, head of research at JS Global Capital Limited, a Karachi-based brokerage research firm. “If executed prudently, it could diversify financing sources, improve investor confidence, and reduce refinancing risks over time.”
But Khaqan Najeeb, a former Pakistani finance adviser, cautioned that commercial debt generally carries higher interest costs and shorter maturities than concessional bilateral loans, which increases debt servicing. “The success of this strategy will depend on whether the government can manage costs, extend debt maturities, avoid crowding out private investment, and ensure borrowing supports economic growth rather than merely financing current expenditures,” he said.