Key Takeaways
- Pakistan has declined a $490 million loan from the Islamic Development Bank due to its high interest rate.
- The government is now seeking a new facility at competitive rates.
- Pakistan’s gross financing needs remain at around 20 percent of GDP.
Pakistan has rejected a $490 million loan from the Islamic Development Bank (IsDB) Group due to its high interest rate, according to a statement from the Finance Ministry.
The loan, offered by the International Islamic Trade Finance Corporation (ITFC), was rejected last week by the Debt Management Office (DMO) of the Finance Ministry. The ITFC’s all-in cost of about 8 percent was deemed too high, compared to Pakistan’s December 2027 bond, which was trading at 6.1 percent.
Finance Division had hoped for an interest cost of around 6 percent, highlighting the discrepancy between the offered rate and the government’s expectations.
The decision comes a few months after Pakistan secured a $300 million loan from United Bank Limited in August, with the government granting an income tax exemption on the bank’s profit to secure it.
Under the Finance Ministry’s borrowing plan for FY2026-27, total gross financing needs are projected at Rs. 28.647 trillion, or about 20 percent of GDP. Net external financing is estimated at Rs. 813 billion ($2.8 billion), with multilateral lenders expected to provide most of it.
The government has now asked the Economic Affairs Division to find a new facility at competitive rates, either from the ITFC or another lender.
Borrowing has also become costlier. In September, Pakistan raised $3 billion through Eurobonds, including a five-and-a-half-year bond at 7.5 percent and a 10-year bond at 7.9 percent.
Earlier this year, the country also signed three loan agreements worth $603 million with the IsDB, further highlighting the financial challenges Pakistan faces in securing affordable loans.
