Pakistan turns down $490m IsDB loan, betting it can borrow cheaper than 8%
Pakistan's Debt Management Office has turned down a $490 million one-year commercial facility from the Islamic Development Bank Group's International Islamic Trade Finance Corporation, judging its roughly 8% all-in cost too high, government officials said. The finance ministry had hoped to borrow at around 6%, and the ITFC offer compared unfavourably with a Pakistan bond maturing in December 2027 that was trading at 6.1%.
The refusal lands as the finance ministry puts gross financing needs at Rs28.647 trillion for fiscal year 2026-27, about 20% of GDP, according to its annual borrowing plan. That figure bundles a Rs7 trillion federal fiscal deficit with more than Rs21 trillion of domestic and external maturities. Net external financing is projected at Rs813 billion, or $2.8 billion, after repayments, with multilateral lenders expected to supply $1.6 billion of net lending.
The International Monetary Fund's latest report puts gross financing needs nearer 22% of GDP for the last fiscal year, a figure finance ministry officials consider on the high side, and projects a current account deficit of 1% of GDP, close to $4.5 billion. That is at least $1.5 billion more than the $2.5 billion to $3 billion the Pakistani authorities pitched during recent talks.
The decision came a couple of months after Pakistan took a $300 million loan from United Bank Limited, which the sources said originated the amount from Bahrain and Dubai in August. The government obtained that facility by waiving income tax on the lender's profit, and officials said it has also processed the exemption for the $300 million foreign-origin commercial loan. A finance ministry official said lenders extend such facilities on condition that Pakistani taxes are not borne by them, leaving the government to absorb the cost or grant an exemption under a power the federal cabinet holds.
The finance ministry has asked the Economic Affairs Division to seek a replacement facility from the ITFC or another source at competitive rates, the sources added. The debt office has been without a permanent director general since January, and the finance ministry spokesperson did not respond to a request for comment on the decision. The turn-down also sits against September's $3 billion Eurobond raise, which carried higher rates than Pakistan paid in 2021: $1.75 billion of five-and-a-half-year paper at a 7.5% coupon and $1.25 billion of 10-year debt at 7.9%, as US Treasury yields above 5% lifted the global cost of borrowing.
