ISLAMABAD: Pakistan is exploring a proposal to raise approximately $1.5 billion in financing backed by World Bank Group guarantees, the finance ministry said on Friday, as Islamabad seeks cheaper, longer-term borrowing to manage its external debt.

The proposal comes as the South Asian nation works to diversify its financing sources and reduce reliance on expensive, short-term borrowing after repeated balance-of-payments crises forced it to seek assistance from the International Monetary Fund.

Pakistan, currently implementing a $7 billion IMF bailout program, has returned to international debt markets through private placements, Panda bonds and Eurobonds. The government says it wants to use improved market access to refinance costly debt and extend repayment periods without increasing its overall external debt burden.

“The Finance Minister welcomed the proposal of combining a World Bank policy-based guarantee with Multilateral Investment Guarantee Agency (MIGA) coverage to attract financing at competitive rates, with a potential financing target of approximately $1.5 billion, subject to the guarantee envelope and transaction structure,” the ministry said in a statement after Finance Minister Muhammad Aurangzeb met with global consulting firm Alvarez & Marsal on the sidelines of the annual meetings of the IMF and World Bank in Bangkok.

World Bank guarantees can help countries obtain commercial financing on more favorable terms by reducing risks for lenders. MIGA, a member of the World Bank Group, provides guarantees against certain investment and financing risks, helping mobilize private capital in developing economies.

Combining the two instruments could potentially allow Pakistan to attract financing at lower costs or with longer maturities than it could otherwise secure in international markets.

The ministry said the discussions included leveraging existing World Bank resources, combining budget support with guarantees and broadening participation by international investors.

Aurangzeb emphasized using an existing World Bank Development Policy Operation, rather than negotiating a new framework, to avoid delays in arranging the proposed financing.

He also supported further examination of the proposal by the Finance Division, Economic Affairs Division and World Bank Group, according to the statement.

The ministry did not identify potential lenders, disclose proposed borrowing terms or provide a timeline for the transaction. It also did not say how much of the proposed $1.5 billion would be covered by World Bank Group guarantees.

Pakistan has previously used World Bank guarantees to mobilize commercial borrowing, including a $700 million financing arrangement supported by a $420 million policy-based guarantee in 2017.

The latest proposal comes as Islamabad seeks to sustain its economic recovery despite higher global energy costs and disruptions associated with the continuing Middle East conflict, which have added pressure to the import-dependent economy.

PRIVATIZATION PUSH

In a separate meeting in Bangkok, Aurangzeb met a delegation from Deutsche Bank, which expressed interest in providing strategic advisory support for Pakistan’s privatization program, including electricity distribution companies and major airports.

The government is seeking to accelerate the sale or restructuring of loss-making state enterprises under its IMF-backed reform agenda, following the privatization of national carrier Pakistan International Airlines last year.

Aurangzeb told Reuters this week Islamabad expected to complete five or six privatization transactions during the current fiscal year, potentially raising more than $1 billion.

The first phase of the electricity-sector program covers distribution companies serving Islamabad, Faisalabad and Gujranwala, while the government is pursuing private-sector management of major airports in Islamabad, Karachi and Lahore.

“The Finance Minister welcomed Deutsche Bank’s interest in strategic advisory support for privatization, including power distribution companies and major airports,” the finance ministry said in a separate statement.

The ministry did not specify whether Deutsche Bank had submitted a formal proposal or identify the transactions in which it might participate.

Pakistan’s Privatization Commission said earlier this month that nine interested parties had been prequalified for the sale of Gujranwala Electric Power Company, including three Turkish energy companies. Preparations are also underway for the privatization of Islamabad Electric Supply Company and Faisalabad Electric Supply Company.

The airport initiative, meanwhile, involves bringing private operators into the management of major international airports rather than selling the underlying assets.