The government of Pakistan has decided to launch Panda Bonds to raise loans from Chinese capital markets. Launching of Panda Bonds is part of Pakistan’s plans to move towards giving the Chinese currency, a status at par with that enjoyed by the US dollar. The interest rates and the size of the bonds would be decided at a later stage.
Panda bonds are Chinese renminbi-denominated bonds from a non-Chinese issuer, sold in the People’s Republic of China. The first two Panda bonds were issued in October 2005 on the by the International Finance Corporation and the Asian Development Bank on the same day.
China is Pakistan’s largest trading partner. Pakistan has the highest trade deficit with China. The raising of capital in Chinese currency will aid Pakistan to bridge the deficit. The Finance Ministry of Pakistan has said that the Panda Bonds are part of its multipronged approach for bridging the foreign financing needs and building foreign exchange reserves. Panda Bonds will help Pakistan to diversify the investor base of capital market issuance and provide a source of raising renminbi.