In a strategic move to address external financing needs, Pakistan has secured a $300 million commercial loan, marking its first new non-Chinese financing facility in years. The loan, which is intended to help meet the country’s obligations under the International Monetary Fund (IMF) programme, has been arranged through United Bank Limited (UBL), with funding sourced from Gulf countries.
The loan consists of two components: a $250 million facility with an interest rate of around 7.2%, based on the one-year Secured Overnight Financing Rate (SOFR) plus a 3% margin, and a $50 million facility at 7.7%, based on a SOFR plus a 3.5% margin. The loan will be repaid within a year, offering a short-term solution to Pakistan’s financial needs. This arrangement follows a difficult period during which Gulf and European banks withdrew financing due to concerns over Pakistan’s credit rating.
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The loan is a significant step for Pakistan, as it represents the first foreign commercial loan since 2022, when financing from international sources was scarce. The government is looking to further increase this facility by an additional $100 million. Despite challenges, including high interest rates and low credit ratings, the facility arranged by UBL signals potential for further foreign financing.
This loan comes at a crucial time as Pakistan grapples with an external financing gap identified by the IMF, which has amounted to $2.5 billion for the fiscal year. While the government has yet to secure deferred oil payments from Saudi Arabia, the finance minister remains optimistic about closing the gap and borrowing at more competitive rates moving forward.
