Pakistan secures $1 billion Islamic-conventional finance deal

On June 18th, the government of Pakistan announced that its Ministry of Finance had secured a $1 billion five-year syndicated term finance facility structured with Islamic and conventional tranches.

Dubai Islamic Bank was the sole Islamic global coordinator, while Dubai Islamic Bank and Standard Chartered Bank served as mandated lead arrangers and bookrunners. The facility is partially backed by a policy-based guarantee from the Asian Development Bank (ADB) under its “Improved Resource Mobilisation & Utilisation Reform” program.

“This is a landmark transaction for the Government of Pakistan that demonstrates strong support from leading financiers in the region,” the ministry said in a statement, adding that the facility includes Islamic and conventional tranches, with 89% structured to comply with AAOIFI standards.

It is the first financing supported by an ADB Policy-Based Guarantee linked to reforms undertaken by a member country. The ministry stated that the program is designed to foster long-term fiscal resilience and has facilitated Pakistan’s re-entry into international commercial markets, with strong interest from Middle Eastern banks.

In a separate announcement, the ministry stated that it had raised over 1.2 trillion Pakistani rupees through a major government bond auction on Wednesday, including 47 billion rupees from launching a new 15-year zero-coupon bond, the first of its kind in the country.

The zero-coupon bond, which pays a lump sum at maturity instead of regular interest, is designed to reduce short-term repayment pressures and support long-term fiscal planning. Officials said the strong demand reflects investor confidence in Pakistan’s economic outlook and reform measures.

Finance Minister Muhammad Aurangzeb described the financing developments as a major step forward in strengthening Pakistan’s financial system and making it more resilient.

“We are introducing new, smart ways of borrowing that reduce risk and give investors more options,” he said. “Our aim is to manage public debt responsibly, promote Islamic finance, and attract more long-term investment to support the country’s economic growth.”

The ministry reported a more extended average maturity profile for domestic debt, which has increased from 2.7 years in 2023 to 3.75 years. It also noted rising participation by pension funds and insurance companies, helping diversify the investor base.

Efforts are also underway to introduce retail-focused Islamic bond products to encourage public participation and promote financial inclusion.

Officials said the successful auction and strong subscription levels indicate improving investor confidence despite broader global economic uncertainties.