Pakistan Secures $1 Billion Loan from 2 Middle Eastern Banks

Pakistan has finalized agreements for a $1 billion loan with two Middle Eastern financial institutions, according to Finance Minister Muhammad Aurangzeb. Speaking to Reuters during the World Economic Forum in Davos, Aurangzeb revealed that the loans, carrying an interest rate of 6%-7%, are short-term arrangements with a maturity of up to one year. The agreements include one bilateral loan and another for trade financing, as Pakistan seeks to bolster its financial reserves. This development is part of a broader strategy to secure up to $4 billion from Middle Eastern commercial banks by the next fiscal year, as previously outlined by the country’s central bank governor. The Finance Minister also expressed optimism about improving Pakistan’s credit ratings. He stated that discussions with rating agencies are underway to achieve a single B rating, with hopes for an upgrade before the fiscal year ends in June. Currently, Pakistan’s credit ratings remain in “junk” territory, despite recent improvements. Moody’s upgraded the country’s rating to ‘Caa2’ in August 2023, citing better macroeconomic conditions, while Fitch raised its rating to CCC+ in July following an agreement with the International Monetary Fund (IMF). Pakistan is preparing for the first review of its $7 billion IMF Extended Fund Facility (EFF), scheduled for late February. The EFF, secured in September 2024, aims to address medium-term balance of payments challenges caused by structural economic weaknesses. Aurangzeb expressed confidence in meeting the IMF’s requirements for the review. Additionally, Pakistan has requested $1 billion in funding from the IMF’s Resilience and Sustainability Trust (RST), which supports climate-related initiatives such as transitioning to clean energy and climate adaptation. Discussions on RST financing are expected to progress during the IMF’s February review. Aurangzeb hopes to finalize the arrangement within six to nine months, emphasizing the country’s vulnerability to climate change as highlighted by the Global Climate Risk Index. Efforts to privatize Pakistan International Airlines (PIA) are also underway, with Aurangzeb optimistic about achieving a resolution within the next five to six months. The government’s previous attempt to sell a 60% stake in the debt-laden airline failed last year. However, the recent lifting of a 4.5-year ban by the EU aviation regulator has improved PIA’s business prospects, with flights to Europe resuming this month.