Pakistan seeks rollover of $494 million-loan

Govt has another $200m loan from IDB for ‘budgetary support’

Shahbaz Rana February 05, 2016


Pakistan is seeking a rollover of a $494-million loan obtained from the Jeddah-based Islamic Development Bank (IDB) in addition to seeking a fresh loan for budgetary support, despite the government’s boastful claims about the highest-ever foreign currency reserves.

The government has started procedural formalities to seek a debt repayment extension on the loan obtained last year at a mark-up rate of 5%, finance ministry officials say. The loan matured on January 21 and immediately after that, the government initiated the process of seeking a rollover.

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Moreover, the authorities have sent a request to the IDB to loan $200 million more for budgetary support, the officials said. The rollover and budgetary support are in addition to $417.8 million loans Pakistan borrowed from the bank between July and December last year.

The government, they added, has sought another $100 million short-term loan, which, if effective, would increase borrowings from the IDB to roughly $518 million in the past seven months alone.

Comparatively, the IDB gives expensive loans than two other multilateral lenders – the Asian Development Bank and the World Bank.

In the last fiscal year 2014-15, Pakistan had borrowed over $1 billion short-term loans from the IDB in the hope of returning them within one year.

Sources in the finance ministry, however, say the government is not in a position to avoid short-term expensive loans due to its adverse implications on the much-touted foreign currency reserves held by the State Bank of Pakistan (SBP).

The finance ministry’s latest debt policy report states borrowing from the IDB has been mostly done on a short-term basis under a ‘Murabaha’ arrangement.

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The government is also keen to get the amount rollover to meet an International Monetary Fund (IMF) condition on Net International Reserves (NIR) – the official foreign currency reserves of the SBP excluding the liabilities.

The net official reserves stood at $9.3 billion by December-end, in line with the IMF condition. As of January 29, the country’s total reserves stood at $20.275 billion, out of which the SBP reserves were $15.435 billion.

Finance Minister Ishaq Dar had congratulated the nation for crossing the $20-billion mark, although a significant portion of the reserves comprises borrowed funds.

In addition to raising money through the expensive Eurobonds and Sukuk bonds, Pakistan also got $1 billion from China aimed at helping the country improve its reserves position. The government is also regularly getting this money rolled over instead of returning it to Beijing.

The decision to get these rollovers has put a question mark over the claims of largest-ever foreign currency reserves. The IMF’s last report on the state of Pakistan’s economy shows the country’s total external debt will balloon to $70.2 billion by June this year. Almost 50% revenues are spent on servicing domestic and foreign debts.

Published in The Express Tribune, February 6th, 2016.

Facebook Conversations


Alladitta | 4 years ago | Reply | Recommend Comparing to Greece and Ireland is like comparing grapes and watermelons, these countries are part of the EU. Caucasians and Christian.
tellmore | 4 years ago | Reply | Recommend No need for alarm. The loan pakistan has taken is very small when compared to the loans many other smaller countries took. For example- Greece. They took USD 375 billion loans and their population is very small when compared to Pak. The loans taken by sovereign nations are different than individuals. In case Pakistan defaults- maximum what happens is - the lenders will come together , waive some loans and negotiate another package for repayment. May be Pakistan may have to sell some assets which is quite common. If one tries to recollect the case of ICELAND Bankruptcy few years back- they told that they do no have money to return even to the depositors in UK. Finally, the creditors went to court and court has given 30 years time to Govt to replay them. Now govt is again reviving the economy as they do not need to replay heavy interest. What Pakistan as an islamic country can do is - to tell all the creditors that it will not pay interest as it is against Sharia. Principle can be repaid when the economy does well. There is nothing any body can do to Pakistan.
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