Pakistan has turned down a $490 million commercial loan offered by the Islamic Development Bank (IsDB) Group because the lender’s interest rate was too high, even as the country’s gross financing needs remain at around 20 percent of GDP.
The one-year facility was offered by the International Islamic Trade Finance Corporation (ITFC), the IsDB Group’s trade finance arm.
The Debt Management Office (DMO) of the Finance Ministry rejected it last week.
Why the Loan Was Rejected
Finance Division was hoping for an interest cost of around 6 percent. The ITFC’s all-in cost of about 8 percent was also higher than Pakistan’s December 2027 bond, which was trading at 6.1 percent.
The government has now asked the Economic Affairs Division to find a new facility at competitive rates, either from the ITFC or another lender.
Financing Needs Stay High
The decision comes a couple of months after Pakistan took a $300 million loan from United Bank Limited in August. The government granted 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.
Meanwhile, the IMF’s latest report projects the current account deficit at 1 percent of GDP, or nearly $4.5 billion. That is at least $1.5 billion more than the $2.5 billion to $3 billion estimated by Pakistani authorities.
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.
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