The Asian Development Bank (ADB) has recommended that Pakistan integrate its Sustainable Financing Framework (SFF) into the Public Sector Development Programme (PSDP), gradually reduce dependence on multilateral guarantees and connect future Panda Bond issuances with measurable sector reforms. The recommendations follow Pakistan’s debut Panda Bond transaction, which opened access to China’s onshore renminbi market and attracted strong investor interest while relying on credit guarantees to achieve the required market rating.
Pakistan issued its first Panda Bond worth CNY 1.75 billion, equivalent to approximately $258 million, on May 15, 2026. The transaction attracted investor orders of CNY 8.8 billion, more than five times the size of the issue. In a brief titled “Financing Sustainable Infrastructure in Pakistan: Leveraging Panda Bond, Partial Credit Guarantees, and Sector Reforms,” the ADB said the inaugural transaction established another financing channel for Pakistan and could provide a foundation for future issuances connected with reforms and sustainable infrastructure.
The three-year bond carries a 2.5% coupon, while its estimated all-in funding cost stands at 3.22%. The transaction received guarantees from the ADB and the Asian Infrastructure Investment Bank (AIIB), covering up to 95% of the bond amount and helping the issue obtain a domestic AAA rating in China. The ADB guarantees approximately $140 million equivalent of principal along with its share of accrued interest, while AIIB covers up to $110 million of principal and the corresponding share of interest.
According to the ADB, Pakistan’s standalone sovereign credit profile was not sufficient to reach the targeted institutional investor base in China’s onshore market, making credit enhancement necessary for securing the AAA rating. However, the bank recommended that future Panda Bond transactions progressively move toward lower guarantee coverage and longer maturities as Pakistan develops a stronger track record in the renminbi market. The first transaction also established relationships with 14 institutional investors and supported confidence in Pakistan’s broader CNY 7.2 billion, or approximately $1 billion, Panda Bond Programme for fiscal years 2026 to 2028.
The ADB also recommended that Pakistan use Panda Bonds not only as a financing mechanism but also as a way to improve the quality and sustainability of public investment. It proposed creating a permanent screening and tagging function within the Ministry of Finance and Planning Commission to integrate the Sustainable Financing Framework directly into the PSDP. Under such an approach, eligible green and social projects could be identified during development programme formulation rather than being selected later to meet bond-related requirements.
The bank further called for Pakistan’s first SFF allocation and impact report to be published according to schedule and independently verified. According to the ADB, establishing a consistent disclosure and reporting record would support future market issuances and strengthen transparency around the use and impact of bond proceeds. Funds from the inaugural Panda Bond are ring-fenced under the SFF for eligible green and social expenditure within the federal PSDP, including projects related to water monitoring, electricity distribution networks and health infrastructure.
Water has also been identified by the ADB as a potential sector where future Panda Bond financing could be directly connected to policy reforms. Suggested measures include establishing a national water-accounting framework, publishing provincial water accounts, regulating groundwater, improving irrigation water productivity and introducing volumetric measurement at the canal level. The bank also highlighted provincial water legislation as another possible reform area, noting that the four provinces are at different stages of developing or implementing their respective frameworks.
The ADB said linking market financing with measurable reforms could encourage federal agencies to develop more bankable projects supported by stronger due diligence and verifiable sustainability outcomes. The Sustainable Financing Framework could also strengthen the PSDP by creating a screened pipeline of climate-tagged projects and introducing greater discipline through proceeds tracking, results measurement and impact reporting. While the bank noted improvements in Pakistan’s macroeconomic conditions following the severe fiscal and balance-of-payments pressures experienced during 2022-23, it cautioned that significant fiscal, external and financing constraints remain, making continued macroeconomic discipline and access to longer-term financing important.
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