Pakistan turns down $490m ITFC loan over 8% cost

Pakistan has turned down a $490 million commercial loan offered by the International Islamic Trade Finance Corporation (ITFC), part of the Islamic Development Bank (IsDB) Group, because of its high cost, according to The Express Tribune and Express News. The facility had been offered for one year.

Government officials said the Debt Management Office of the finance ministry took the decision last week. The office had hoped for an interest cost of around 6%, but the ITFC's all-in cost was about 8%. Sources said this was higher than the 6.1% at which a bond maturing in December 2027 was trading. The finance ministry spokesperson did not respond to a request for comment. The debt office has had no permanent director general since January this year.

After the rejection, the finance ministry asked the Economic Affairs Division to look for a new loan facility, either from the ITFC or another source, at competitive rates, the sources said.

The decision comes while Pakistan's financing needs remain high. The finance ministry's borrowing plan for fiscal year 2026-27 puts total gross financing needs at Rs28.647 trillion, about 20% of GDP. This includes a federal fiscal deficit of Rs7 trillion and more than Rs21 trillion of domestic and external maturities. Net external financing is projected at Rs813 billion, or $2.8 billion, and the actual borrowing will be higher because that figure is after repayments of maturing debt.

The International Monetary Fund, in a report released this week, projected the current account deficit at 1% of GDP, or nearly $4.5 billion. That is at least $1.5 billion above the $2.5 billion to $3 billion put forward by Pakistani authorities in recent talks. The IMF also put gross financing needs at around 22% of GDP for the last fiscal year, a figure finance ministry officials considered on the high side.

The refusal came a couple of months after Pakistan took a $300 million loan from United Bank Limited, which raised the amount from Bahrain and Dubai in August. Income tax on the bank's profits from the loan was waived. A finance ministry official said foreign commercial lenders offer such facilities on condition that Pakistani taxes are not borne by them, so the government either bears the tax or grants an exemption. The law lets the federal cabinet waive these taxes, which must eventually be paid from the budget.

In September the government raised $3 billion through Eurobonds, according to the reports: $1.75 billion through a five-and-a-half-year bond at a 7.5% coupon and $1.25 billion through a 10-year bond at a 7.9% face value rate. The finance ministry is counting on multilateral lenders as the main source of external funding, with $1.6 billion of net lending expected.