Pakistan secures $3.2bn loan pledges from foreign creditors

• Saudi Arabia promises $1.2 oil facility for Islamabad.
• Dubai Islamic Bank commits to providing $1 billion.
• IDB, SCB pledge $600m and $430m, respectively.
  

ISLAMABAD: Amid Prime Minister Shehbaz Sharif-led government's efforts to tackle various challenges on the economic front, the administration has secured a commitment of foreign loans amounting to $3.2 billion from international creditors including Saudi Oil Facility (SOF) of $1.2 billion for the next 12 months, The News reported on Tuesday.

The loan pledges include $1.2 billion loan facility promised by Saudi Arabia, $1 billion in commercial loans from Dubai Islamic Bank (DIB), $600 million from SCB, and approximately $430 million from Islamic Development Bank's International Islamic Trade Finance Corporation (ITFC) facility.

The development comes after the approval of a $7 billion new loan programme by the International Monetary Fund's (IMF) Executive Board last month which was subsequently followed by the first tranche of $1.03 billion (SDR 760 million) which was disbursed to Islamabad.

The borrowing plan for the financial year 2024-25 placed by the Ministry of Finance revealed that Pakistan was eyeing to fetch $19.274 billion during the current fiscal year. The external inflows of $19.2 billion did not include the borrowing amount secured from the IMF under Extended Fund Facility (EFF).

Pakistan is projected to get $4.56 billion from the multilateral creditors including the World Bank, Asian Development Bank, Islamic Development Bank and Asian Infrastructure Investment Bank (AIIB), bilateral $9.4 billion, commercial banks $3.779 billion, international bonds $1 billion and Naya Pakistan Certificate $0.5 billion.

Top sources said that the federal secretary of finance recently visited the Kingdom of Saudi Arabia, but nothing had been signed so far as a result of his visit.

He might have discussed the possibilities including the term sheet for finalising the Saudi Oil Facility (SOF) of $1.2 billion and the Reko Diq deal. This scribe had sent out questions last week to the finance ministry high-ups but got no reply till the filing of the report.

The borrowing plan for FY25 reads that the government remains committed to completing all actions associated with multilateral programme loans, which are in the pipeline and are projected to be disbursed during the year.

The key multilateral programme loans during FY25 are from ADB which include: (i) Climate and Disaster Resilience Enhancement Programme (sub-program I) amounting to $400 million; (ii) Women Inclusive Finance (sub-program II) amounting to $100 million; and (iii) Domestic Resource Mobilisation (sub-program II) amounting to $300 million.

Furthermore, the government aims to complete all performance and policy actions (PPAs) as agreed upon with the multilateral development partners. The government plans to roll over the bilateral deposits from China amounting to $4 billion and Saudi Arabia amounting to $5 billion.

For foreign commercial loans, the government aims to refinance the foreign commercial bank loans amounting to around $3.878 billion. In addition, a plan is to raise an additional $1.2 billion as new commercial debt.

The government is eyeing to raise around $1 billion through the issuance of Panda Bonds in the Chinese capital markets and Green Bonds in the international capital markets. There is no maturity of Eurobond or International Sukuk during FY25.

Pakistan is grappling with profound impacts of climate change, such as shifting weather patterns and catastrophic floods. The scale of this climate transition underscores the need for sustainable finance.

In this regard, the government aims to establish a sustainable finance framework in order to: (i) Promote sustainable and green financing; (ii) Counter and prevent adverse effects of climate change; (iii) Ensure adherence towards Sustainable Development Goals (SDGs); and (iv) Meet the targets as defined through Nationally Determined Contributions.

For this purpose, the finance ministry is working with the joint sustainability coordinators. With the positive macroeconomic developments and availability of an opportune window, the possibility of an inaugural green, social or sustainability bond issuance will be explored during Q4 of FY25.

For Panda Bond, Islamabad plans to carry out the maiden issuance of Panda Bond in the Chinese capital markets. For this purpose, China Development Bank, China International Capital Corporation, Habib Bank Limited and Ci+ Bank are acting as joint financial advisors.

The plan is to carry out the issuance of a Panda Bond with an amount equivalent to $300 million during FY25. The process for engagement of third-party services i.e., domestic/international legal counsels and rating agencies is already underway.