Pakistan gets $500m loan at 4.9% interest rate.
The sum that was transmitted was reportedly part of the program’s finance, according to the Minister of Finance.
ISLAMABAD: On Tuesday, Pakistan received one of the most expensive loan tranches in the amount of $500 million from any multilateral creditor. At the same time, the cash-strapped country also urged a Chinese commercial bank to refinance the maturing debt and review the possibility of giving more loans.
Ishaq Dar, Pakistan’s Finance Minister, took to the microblogging website Twitter to make the announcement. He stated that 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.”
The foreign exchange reserves are expected to remain at their current level of $7.9 billion ahead of the repayment of $1 billion on Friday. These loans will help sustain this level.
In addition, Pakistan is negotiating with two commercial banks in China in an effort to speed up the process of refinancing their debts.
These changes came about as a result of Pakistan’s inability to get the International Monetary Fund programme back on track after it had veered off course for the fourth time in the preceding three years. According to the sources, the International Monetary Fund has not yet been persuaded by the facts that Pakistan has presented.
The maturity period for the AIIB loan is only seven years, making it one of the loans with the shortest maturity periods. According to documents that the Ministry of Finance submitted before a loan concept clearance body this month, Pakistan will pay an interest rate of approximately 4.9%, making it one of the most expensive lending from a multilateral creditor. In addition, the loan will be one of the most expensive lending options available.
The interest rate is significantly greater than the one that several international commercial banks charge for loans. A loan from the Asian Infrastructure Investment Bank (AIIB) was taken out at the Secured Overnight Financing Rate (SOFR), which is now at 3.8%. To bring the total up to 4.61%, Pakistan will have to pay an additional 0.81% above and above the SOFR to account for a fixed spread in addition to the variable borrowing cost. Next, there is a front-end fee of 0.25%, which brings the total cost of the loan to $1.25 million (based on the original amount borrowed of $500 million).
In order for Pakistan to achieve the expected foreign funding requirements of $34 billion for the current fiscal year, the country has no choice but to take out loans of such a high interest rate.
Ishaq Dar also held a virtual conference with the President of the Bank of China, Liu Jin, on Tuesday. During this discussion, Ishaq Dar asked Liu Jin to refinance the debt maturing in the amount of $300 million.
In the beginning of this month, Prime Minister Shehbaz Sharif travelled to China in order to negotiate a rollover of the country’s debt, which totaled $6.3 billion and included $3.3 billion in commercial loans. Pakistan has already repaid a loan to the Industrial Commercial Bank of China (ICBC) in the amount of $500 million, which it is also currently attempting to pay back as soon as possible.
According to the information provided by the ministry of finance, Pakistan has been able to maintain profitable financial relationships with the Bank of China. Dar expressed that it has always been a tremendous pleasure to cooperate with the Bank of China.
In addition, the Minister of Finance drew attention to the recent trip that the Prime Minister took to China and discussed the reciprocation of warm sentiments from the leadership of China, the report stated.
It was shared that the Bank of China has played a crucial role in extending budgetary support to Pakistan, which according to the finance ministry has played a significant role in easing pressure on the external account and meeting budgetary needs. Also shared was the fact that the Bank of China has played a significant role in extending budgetary support to Afghanistan, which has played a significant role in easing pressure on the
The president of the Bank of China was issued an invitation to visit Pakistan by the country’s Minister of Finance. He shared with the president of the bank that the current government is firmly committed to reestablishing macroeconomic stability, and he updated the president on the financial and fiscal conditions that the previous administration had left behind for the current administration.
In this regard, the Minister of Finance approached the President of the Bank of China and requested an extension of business links between Pakistan and China in order to further develop the economic and financial ties between the two countries.
According to the sources, Dar made a request to the president of the Bank of China to investigate the possibilities of providing fresh loans in addition to refinancing the ones that were already in place.
Additionally, Dar met with an institutional investor group in order to address their worries on Pakistan’s ability to pay its debts. The meeting was place in Pakistan.
Dar received a visit by a delegation representing Jefferies, CEO K-trade, Goldman Sachs Asset Management, Stone Harbor Investment Partners, and Vontobel Asset Management group.
The economic climate and forecast for the country were topics of discussion during the delegation’s visit.
According to a statement released by the ministry of finance, “the delegation held a comprehensive conversation with the finance minister discussing the IMF programme, flood-related expenditures and losses, market perception and forecast, as well as the foreign account position.”
According to Pakistan’s Minister of Finance, the country is making slow but steady progress toward economic stability, and now is an excellent time to make investments in Pakistan. It was disclosed that the period of reconstruction and rehabilitation would begin in the coming months.
The minister of finance declared that the current government intends to successfully complete the IMF programme, and that the government will return the foreign bonds on time, as stated by the ministry. The minister also stated that the current government will not raise taxes.
In the meeting, Dar stated that there were no plans to approach the Paris Club, and that the government was committed to honouring all of the financial commitments that had been made, both by the current government and by previous governments, with national and international financial institutions. The statement from the ministry said that the government was committed to honouring all of these commitments.
