Pakistan gets 10% less loan due to credibility crisis

Borrowing choices decrease due to limited options and delays in fulfilling international creditors' demands

Picture source - AFP

The Credibility Crisis has caused Pakistan to get 10 percent fewer loans during the first quarter of the ongoing fiscal year. Less than one-fifth of its budget projection was in form of foreign loans only $4.2 billion were received.

The country’s borrowing choices have been on the decrease due to limited options, delays in fulfilling international creditors’ demands and credibility issues.

According to a report released on Friday by the Ministry of Economic Affairs $4.2 billion were disbursed in foreign loans from July to October 2022. The amount was 10 percent higher when compared to the loans obtained during the same period during the previous fiscal year.

After the Asian Development Bank (ADB) had agreed to provide $1.5 billion, mostly condition-free but at a substantially higher interest rate, half of the loans were received in October alone. ADB has thus far disbursed $1.6 billion or 50 percent of the estimated annual amount.

Only 18.4 percent of the $22.8 billion yearly forecast i.e. $4.2 billion was actually spent in the period from July to October. After the international credit rating agencies lowered Pakistan’s outlook to negative and debt rating to junk status, borrowing choices have remained constrained.

According to the economic affairs ministry, Pakistan has only received $200 million in foreign commercial loans in the current fiscal year which is far less than the $7.5 billion annual forecast.

The almost $1.1 billion budget assistance loan from the World Bank is also in jeopardy. Pakistan asserts that it has fulfilled the requirements for a $450 million loan but the date of the World Bank board meeting has not yet been set. World Bank has released $476 million in the first four months of FY23.

Islamic Development Bank has contributed $168 million instead of the estimated $1.2 billion annually. In contrast to the $800 million yearly projection, Saudi Arabia has released $400 million under an oil credit facility.