Pakistan declined a $490 million commercial loan from the Islamic Development Bank (IsDB) Group after the lender's interest rate proved too steep, even as the nation's gross financing requirements hover at roughly 20 percent of GDP.
The one-year loan was proposed by the International Islamic Trade Finance Corporation (ITFC), the trade-finance division of the IsDB Group.
The Finance Ministry's Debt Management Office (DMO) rejected the proposal last week.
Why the Loan Was Rejected
The Finance Division had aimed for an interest cost near 6 percent. The ITFC's all-in rate of about 8 percent exceeded that target and was higher than Pakistan's December 2027 bond, which was trading at 6.1 percent.
Authorities have now instructed the Economic Affairs Division to source a new facility at more competitive terms, either from the ITFC or another lender.
Financing Needs Stay High
The move follows a $300 million loan from United Bank Limited secured in August, for which the government granted an income-tax exemption on the bank's profit.
According to the Finance Ministry's borrowing plan for FY2026-27, total gross financing needs total Rs. 28.647 trillion, about 20 percent of GDP.
Net external financing is projected at Rs. 813 billion ($2.8 billion), with most of it expected from multilateral lenders.
The IMF's latest assessment forecasts the current-account deficit at 1 percent of GDP, or nearly $4.5 billion, at least $1.5 billion higher than the $2.5 billion to $3 billion range estimated by Pakistani officials.
Borrowing costs have risen. In September, Pakistan raised $3 billion via Eurobonds, including a five-and-a-half-year bond at 7.5 percent and a 10-year bond at 7.9 percent.
Earlier this year, the country also signed three loan agreements with the IsDB worth $603 million.
