Islamabad: The government has signed an agreement with a European bank to obtain a loan at a high-interest rate in order to secure an IMF package.
Despite a staff-level agreement, the government has faced difficulties in obtaining a $7 billion loan from the IMF, which has stipulated conditions such as acquiring additional loans from other sources or rolling over existing debts for loan approval.
Sources indicate that due to failures in securing additional loans from friendly countries, the government has entered into an agreement with Standard Chartered Bank in London for a $600 million loan at an 11% interest rate.
Of this amount, $300 million is for LNG supply and $300 million is for syndicated financing. This loan represents the highest interest rate on loans obtained so far.
Officials say the Ministry of Finance was initially hesitant to secure this loan, but had no choice after failing to obtain funds from other sources.
However, friendly countries have agreed to roll over $12 billion in debt, which increases the likelihood of the IMF approving Pakistan’s loan package in its meeting on September 25.
IMF Director of Communications Julie Kozik had previously stated that the Executive Board meeting on September 25 will review Pakistan’s loan package.
It is worth noting that Standard Chartered Bank had previously provided Pakistan with $1.9 billion in loans from 2017 to 2021 on four different occasions.
The bank had provided $700 million in 2017 at an interest rate of 4.5%, $200 million in 2019 at 3.25%, and $1 billion at 2.4%.
Earlier in August, Finance Minister Muhammad Aurangzeb mentioned that while there was an offer for a loan from a foreign commercial bank, the aim was to secure it at a lower interest rate after the IMF package approval.
According to a senior government official, despite a slight improvement in ratings, global rating agencies still categorize Pakistan as high-risk, making banks unwilling to offer loans at lower rates.
Consequently, the loan had to be secured at a high-interest rate. It is important to note that Pakistan will require more loans in the coming years, as it needs to manage debt payments totaling $26 billion annually.