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Pakistan Financial Crisis: Pakistan has proposed foreign borrowing of about US $ 20 billion in the current fiscal year budget. Because, this week the International Monetary Fund (IMF) has indefinitely suspended the approval of the US $ 7 billion Extended Fund Facility (EFF) for Pakistan.
Pakistan seeks loan to reduce its growing debt burden
Pakistan has sought loans to reduce its growing debt burden. Pakistan has now sought four billion US dollars from banks in the Middle East region to meet its external financial commitments. While Pakistan has sought this amount from the US $ 7 billion Extended Fund Facility (EFF), its approval is pending with the IMF.
Pakistan's Finance Minister held a meeting with this bank
Pakistan Finance Minister Mohammad Aurangzeb and his team met Dubai Islamic Bank Group CEO Dr. Adnan Chilwan in a virtual meeting. Earlier, talks were also held with Mashreq Bank Chairman and Group CEO Ahmed Abdelal. Notably, the issue of debt as well as the economic outlook and investment opportunities in Pakistan were discussed in both meetings.
In the budget, Pakistan proposed foreign borrowing of about US $ 20 billion
In the budget for the current financial year, Pakistan has proposed foreign borrowing of about US $ 20 billion. According to the information, Pakistan has started seeking commercial loans from Middle East banks to repay the debt. Because, this week the IMF has indefinitely postponed the approval of the US $ 7 billion Extended Fund Facility (EFF) for Pakistan.
Pakistan's current credit rating is very low
The finance minister hopes that the IMF may approve the new EFF next month. On the other hand, Pakistan has also increased its partnership with foreign commercial banks. However, high borrowing costs and low credit ratings from international agencies are significant obstacles. Meanwhile, Pakistan's current credit rating is CCC+, which is quite low. Due to which commercial banks are demanding higher interest while giving loans.
What did the State Bank of Pakistan official say?
Meanwhile, the Finance Ministry and the State Bank of Pakistan (SBP) on Thursday briefed the Standing Committee on Economic Affairs on Pakistan's engagement with the IMF. In the meeting, SBP executive Qader Bakhsh said, “The average interest rate in Pakistan's last stand-by arrangement with the IMF was 5.1 per cent. Unless global interest rates fall, rates on new IMF loans are expected to remain stable.”
Pakistan's interest cost on IMF loans has risen steadily since 2008
An SBP official said, 'If a country borrows more than 187.5 percent of its IMF quota, a two percent surcharge is applicable. If the loan period is more than three years, a one percent surcharge is imposed.' However, according to the Finance Ministry, Pakistan's interest cost on IMF loans has been rising steadily since 2008. In 2008, Pakistan borrowed from the IMF at an interest rate of 1.6 percent. After this, in 2013, it increased to 2.4 percent. While the 2019 IMF loan was given at an interest rate of 3.41 percent.