September 9, 2023
Economy Pakistan

Pakistan’s Failure to Revive IMF Loan Program Results in Low Foreign Loan Disbursements

Pakistan's Failure to Revive IMF Loan Program Results in Low Foreign Loan Disbursements

Pakistan received only USD 5.6 billion in foreign loans during the first half of the current fiscal year, equal to about one-fourth of the annual budget estimate. This is due to the cash-starved country’s failure to take timely decisions about reviving the IMF loan program.

Low Disbursements: Data compiled by the Ministry of Economic Affairs showed that foreign loan disbursements from July to December 2022 stood at a mere USD 5.6 billion. The disbursements were not enough to finance the maturing foreign debt, making a severe dent in the foreign exchange reserves held by the central bank. The key reason for the low disbursements was the government’s failure to ensure the timely completion of the ninth review of the IMF program.

IMF Talks: The IMF announced that it would send its mission to Pakistan for talks but the set of conditions listed in its statement suggested that the government would have to go the extra mile to conclude negotiations by February 9.

Limited Borrowing Options: Pakistan’s borrowing options have remained limited after the international credit rating agencies downgraded its outlook to negative and debt rating to junk status. This has increased the country’s borrowing cost in addition to virtually closing the doors to floating Eurobonds.

Commercial Loans: Against the annual estimate of USD 7.5 billion, Pakistan has only received USD 200 million in foreign commercial loans in the current fiscal year. The government now expects it will receive USD 6.3 billion in commercial loans, which appears to be on the higher end.

Sovereign Bond-Based Borrowing: The government had budgeted USD 2 billion in sovereign bond-based borrowing, but the plan did not materialize due to the poor credit rating and expected high-interest cost.

Multilateral Agency Loans: For the current fiscal year, the government has estimated inflows of USD 7.7 billion in loans from multilateral agencies. In six months, USD 3.3 billion, or 44 percent, has been disbursed. The disbursements by the multilateral agencies were better than the half-year estimate, thanks to the Asian Development Bank (ADB).

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