Pakistan gets $500m loan at 4.9% interest rate

Finance minister says amount transferred as part of programme financing

ISLAMABAD:

Pakistan on Tuesday received one of the most expensive loan tranches of $500 million by any multilateral creditor, as the cash-starved country also urged a Chinese commercial bank to refinance the maturing debt and review the possibility of giving more loans.

The “AIIB (Asian Infrastructure Investment Bank) has transferred today, as per their board’s approval, to State Bank of Pakistan/Government of Pakistan $500 million as programme financing”, Finance Minister Ishaq Dar went to micro-blogging website Twitter to announce the news.

These loans will help maintain the foreign exchange reserves at their current level of $7.9 billion ahead of $1 billion repayment on Friday.
Pakistan is also pursuing two Chinese commercial banks to fast track the process of refinancing their debts.

The developments came amid Pakistan’s inability to restart the International Monetary Fund programme that is again off-track for the fourth time in the past three years. The IMF has not yet been convinced with the data provided by Pakistan, according to the sources.

The AIIB loan has a maturity period of seven years, one of the shortest. Pakistan will pay an interest rate of around 4.9%, which also makes it one of the most expensive lending from a multilateral creditor, according to documents that the Ministry of Finance submitted before a loan concept clearance body this month.

The interest rate is even higher than some foreign commercial bank loans. The AIIB loan has been taken at the Secured Overnight Financing Rate (SOFR), which currently stands at 3.8%. Pakistan will pay 0.81% over and above the SOFR on account of a fixed spread and variable borrowing cost, taking the tally to 4.61%. Then there is a front-end fee of 0.25%, which is $1.25 million on a loan of $500 million.

Pakistan does not have a choice but to take such expensive loans in order to meet this fiscal year’s estimated $34 billion foreign financing requirements.
Ishaq Dar on Tuesday also held a virtual meeting with Bank of China President Liu Jin, requesting him to refinance the $300 million maturing debt.

Earlier this month, Prime Minister Shehbaz Sharif had visited China and sought rollover of $6.3 billion debt, including $3.3 billion commercial loans. Pakistan has already paid back a $500 million loan to the Industrial Commercial Bank of China (ICBC), which it is also now seeking to get back at the earliest.

Dar shared that it has always been a great pleasure to work with the Bank of China and Pakistan has enjoyed sound financial dealings with the bank, according to the finance ministry.

The finance minister also highlighted the recent visit of the prime minister to China and talked about reciprocation of warm sentiments from the Chinese leadership, it added.

It was shared that the Bank of China has played a crucial role in extending budgetary support to Pakistan which has played a significant role in easing pressure on the external account and meeting budgetary needs, according to the finance ministry.

The finance minister extended an invitation to the Bank of China president to visit Pakistan. He briefed the bank’s president about the financial and fiscal conditions inherited by the incumbent government, sharing that the present government has a strong resolution to bring back macroeconomic stability.

In this regard, the finance minister sought the support of the Bank of China and asked its president for expansion of business relations with Pakistan to deepen the economic and financial relations.

The sources said that Dar requested the Bank of China president to review the possibility of extending new loans in addition to refinancing the existing ones.
Dar also held a meeting with a delegation of institutional investors aimed at addressing their concerns about the solvency of Pakistan.

The delegation from Jefferies, CEO K-trade, Goldman Sachs Asset Management, Stone Harbor Investment Partners and Vontobel Asset Management group met with Dar here.

The delegation discussed the economic situation and outlook of the country.
“The delegation held a comprehensive discussion with the finance minister regarding the IMF programme, flood related expenditure and losses, market perception and outlook, as well as external account situation,” according to the finance ministry statement.

The finance minister said that Pakistan is slowly but gradually moving towards economic stability and it is high time to invest in Pakistan. It was shared that the reconstruction and rehabilitation phase would start in the coming months.
The finance minister asserted that the incumbent government aims at successfully completing the IMF programme, sharing that the government will repay the international bonds on time, stated the ministry.

Dar maintained in the meeting that there was no plan to approach the Paris Club and the government was committed to honour all of the financial commitments made by the present as well previous the government with the national and international financial institutions, the ministry said.