$1 billion loan agreed with two Middle East banks

DAVOS, SWITZERLAND:

Pakistan had agreed terms for a $1 billion loan with two Middle Eastern banks at a 6%-7% interest rate, Finance Minister Muhammad Aurangzeb told Reuters on Tuesday, as the country looked for more financing.

"With two institutions we have now gone forward in signing up the term sheet – one bilateral and one for trade [finance]," Aurangzeb said during an interview on the sidelines of the World Economic Forum annual meeting in Davos.

The governor of the State Bank of Pakistan (SBP) told Reuters in August that Pakistan aimed to raise up to $4 billion from Middle Eastern commercial banks by the next fiscal year. Aurangzeb said that the loans were short-term, or up to one year.

Aurangzeb said that Pakistan was aiming to discuss with ratings agencies a move towards a single B rating, and hoping to see an upgrade in the months to come. "Ideally I would like to think that some action in this direction can take place before our fiscal year is over, which is this June," he said.

Moody's upgraded Pakistan's ratings to 'Caa2' in August, citing improving macroeconomic conditions, and Fitch raised its rating to CCC+ in July following the staff-level agreement with the International Monetary Fund (IMF). However, both these ratings are still deep in sub-investment grade territory.

IMF hopes Pakistan would boost its finances after securing a $7 billion IMF bailout, with the first review set for February. "We have the first formal review of the EFF [Extended Fund Facilities] coming through towards (the) end of February," Aurangzeb said. "I do think we are in good stead for that review."

In October, Aurangzeb said that Islamabad had requested for around $1 billion in funding from the IMF via its Resilience and Sustainability Trust (RST). Created in 2022, the RST provides long-term concessional cash for climate-related spending, such as adaptation and transitioning to cleaner energy.

Aurangzeb said that Islamabad would take discussions forward on RST financing when the IMF mission visits for the first review of the EFF programme. "I'm hoping in the next sort of six to nine months, we can get there with the Fund as well," said Aurangzeb.

"In the next five to six months we should get to a good outcome," said Aurangzeb, referring to the privatisation of the Pakistan International Airlines (PIA). He cited better business prospects after the EU aviation regulator lifted its 4-1/2 year ban on the airline, with flights to Europe resuming this month.