The Pulse | Economy | South Asia

Pakistan Considers Panda Bonds Amid Evolving US Legislative Dynamics

With friction between the White House and the US Congress likely to increase, financial commitments to Islamabad could face greater congressional scrutiny.

The Pakistani government’s bid to secure a $10 billion Exchange Stabilization Support Facility (ESSF) from the United States is increasingly likely to face a longer review process amid changing domestic political dynamics in Washington following the midterm elections.

As per reports, the proposed facility was expected to function as a financial mechanism under which the U.S. government, through the Treasury’s Exchange Stabilization Fund, could offer loans or other backstop arrangements to Pakistan. Under the proposed structure, “such facilities are primarily used to prevent currency instability and, where necessary, support a partner country’s currency through intervention in foreign exchange markets.”

This essentially means that the U.S. government is not necessarily going to give Pakistan $10 billion upfront as a cash loan. Instead, if this facilitation is approved, the U.S. government might agree to step in as a guarantor if Pakistan runs into a liquidity crisis or cannot meet its foreign exchange obligations.

Only a few months ago, Islamabad appeared relatively confident that the U.S. government would approve the request. In July, Finance Minister Muhammad Aurangzeb met U.S. Treasury Secretary Scott Bessent in Washington, D.C., and formally sought the $10 billion facility.

In subsequent media briefings on ongoing economic negotiations with the U.S., Khurram Schehzad, an adviser to the finance minister, indicated that the talks were progressing and that Pakistan expected a formal response soon. Around the same time, diplomatic sources in Washington told the Pakistani daily Dawn that there were “strong chances” of the request being approved.

However, statements emerging from Pakistan after the midterm results in the U.S. suggest that Islamabad now expects the facility might require more time to become operational than initially anticipated. On November 5, addressing a press conference, the finance minister sought to lower expectations that he himself had raised over the preceding months. “If that [ESSF] materializes, fantastic, it will be a liquidity support facility. Otherwise, we have plans for further Panda bond issuance and rupee-linked dollar-settled bond,” Aurangzeb said.

The midterm elections, which delivered major gains to the Democrats in both the Senate and the House, have altered the broader political calculus in Washington. Going forward, any major foreign financial commitment of this scale could likely face increased congressional scrutiny. With political friction between the Republican-run White House and a Democrat-led Congress, the U.S. government may feel little incentive to push such agreements aggressively, at least for now. This situation appears to stem less from specific opposition to Pakistan itself and more from domestic political dynamics in the United States.

Amid reports of increased congressional friction on Capitol Hill, Islamabad has sought to project stability. Last week, the Foreign Office downplayed the impact of the electoral shift in the U.S. on Pakistan, insisting that Islamabad’s diplomatic approach remains consistent regardless of leadership changes in Washington. “We have maintained excellent relations with all governments, irrespective of who is in power, and this will continue,” Foreign Office spokesperson Sajjad Haider Khan stated during his weekly briefing.

In any case, these shifting political realities in Washington strongly suggest that Pakistan will increasingly turn to China’s domestic debt market out of strategic necessity. With U.S. congressional oversight expected to delay or complicate bilateral support, China’s Panda bond market,........

© The Diplomat