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, alongside other regional financial venues, offers a far more predictable alternative for managing Islamabad’s short-term debt obligations.

Despite deep bilateral economic ties, Pakistan has historically underutilized China’s domestic debt market, relying instead on traditional Western capital markets and bilateral loan roll-overs for sovereign borrowing.

However, that changed with the country’s inaugural Panda bond issuance earlier this year, which raised the equivalent of $250 million at a competitive interest rate of 2.5 percent. The issuance marked Pakistan’s entry into the world’s second-largest capital market. Schehzad noted that the landmark 1.75 billion yuan (approximately $250 million) issuance attracted overwhelming investor demand of over 8.8 billion yuan (roughly $1.26 billion), resulting in oversubscription of more than five times.

Several structural and institutional factors explain why Pakistan may have underutilized China’s public debt market in the past. First, bilateral financial cooperation between Islamabad and Beijing historically centered on direct commercial bank loans, state-to-state credit lines, and central bank currency swap arrangements rather than public market instruments. During the early infrastructure phases of the China-Pakistan Economic Corridor (CPEC), readily available state-backed financing seemingly reduced the immediate pressure to establish access to China’s domestic bond market.

Additionally, Pakistan’s economic managers have traditionally been comfortable with U.S. dollar-denominated instruments, such as Eurobonds and Sukuk, and have maintained close engagement with organizations like the International Monetary Fund (IMF) and the World Bank. However, this established institutional orientation is expected to shift more visibly now as Islamabad sees increased value and stability in the Chinese capital market. In recent years, China’s debt market has emerged as a viable alternative to traditional Western capital hubs. China now offers competitive avenues for sovereign capital raising and debt diversification.

Regular access to yuan-denominated debt can also enable Pakistan to diversify its financing channels at potentially lower interest rates. In practical terms, this would help it pay off Chinese infrastructure debts directly in yuan and avoid costly dollar conversion fees, which would in turn save the country’s foreign exchange reserves.

While Panda bonds alone are unlikely to resolve Pakistan’s broader financial challenges, they offer a reliable funding alternative that Islamabad has strong economic reasons to utilize regularly as political dynamics fluctuate across Washington and traditional Western capital markets.

Recent developments underscore a broader geopolitical reality at play. Despite Pakistan’s active diplomatic cooperation with the United States over the past two years, particularly in assisting with crisis management in West Asia vis-à-vis the conflict with Iran, Islamabad has received limited direct financial support in return from Washington. The prospect of heightened political scrutiny surrounding the ESSF request highlights that the bilateral relationship remains transactional and somewhat exposed to domestic political dynamics in Washington.

In this context, the shifting U.S. political landscape offers Islamabad useful lessons. Pakistan needs to deepen engagement with alternative capital markets beyond the U.S. At the same time, the country should work toward building greater internal economic resilience through reforms. Only the latter can provide a durable solution to the country’s recurring debt challenges.