Pakistan agrees to $1bn loan from Middle Eastern banks

Reuters/Dado Ruvic

Pakistan has agreed terms for a $1 billion loan with two Middle Eastern banks at a 6-7 percent interest rate, its finance minister Muhammad Aurangzeb told Reuters on Tuesday, as the South Asian country searches for more financing.

“With two institutions we have now gone forward in signing up the term sheet – one bilateral and one for trade (finance),” Aurangzeb said during an interview on the sidelines of the World Economic Forum annual meeting in Davos.

The loans were short-term, or up to one year, Aurangzeb added.

The country’s central bank chief told Reuters in August that Pakistan aimed to raise up to $4 billion from Middle Eastern commercial banks by the next fiscal year.

Aurangzeb added that Pakistan was aiming to discuss with ratings agencies a move towards a single “B” rating, and hoping to see an upgrade in the months to come.

“Ideally I would like to think that some action in this direction can take place before our fiscal year is over, which is this June,” he said.

Moody’s upgraded Pakistan’s ratings to ‘Caa2’ in August, citing improving macroeconomic conditions, and Fitch raised its rating to CCC+ in July following the International Monetary Fund (IMF) staff level agreement.

However, both these ratings are still deep in sub-investment grade – or “junk” – territory.

IMF review next month

Pakistan aims to boost its finances after securing a $7 billion IMF bailout in September 2024, with the first review set for late February.

“We have the first formal review of the EFF coming through towards (the) end of February,” Aurangzeb said. “I do think we are in good stead for that review.”

IMF extended fund facilities (EFFs) provide financial assistance to countries facing serious medium-term balance of payments problems resulting from structural weaknesses that require time to address.

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In October, Aurangzeb said Islamabad had made a formal request for around $1 billion in funding from the IMF via its resilience and sustainability trust (RST).

“I am hoping in the next sort of six to nine months, we can get there with the Fund as well,” said Aurangzeb.

Cash-strapped Pakistan failed last year at an attempt to offload a 60 percent stake in its debt-ridden flag carrier, Pakistan International Airlines, which is part of an effort to raise funds and reform state-owned enterprises as envisaged under the ongoing bailout programme.

“In the next five to six months we should get to a good outcome,” said Aurangzeb, referring to the privatisation of PIA.

He cited better business prospects after the EU aviation regulator lifted its four-and-a-half-year ban on the flag carrier, with flights to Europe resuming this month.