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Sunday February 16, 2025

Pakistan agrees $1bn loan with two ME banks

Aurangzeb says Islamabad will take discussions forward on RST financing when IMF mission visits for first review of EFF programme

By News Desk & Our Correspondent
January 22, 2025
Finance Minister Muhammad Aurangzeb speaks during an interview with Reuters at his office in Islamabad, Pakistan July 19, 2024. — Reuters/File
Finance Minister Muhammad Aurangzeb speaks during an interview with Reuters at his office in Islamabad, Pakistan July 19, 2024. — Reuters/File 

DAVOS/ISLAMABAD: Pakistan has agreed terms for a $1 billion loan with two Middle Eastern banks at a six to seven percent interest rate, Finance Minister Muhammad Aurangzeb told a British wire service on Tuesday, as Islamabad looks 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 (WEF) annual meeting in Davos.

The loans were short-term, or up to one year, he added.

The State Bank of Pakistan governor told the wire service in August that Pakistan aimed to raise up to $4 billion from Middle Eastern commercial banks by the next fiscal year.

Aurangzeb added 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 IMF staff level agreement.

However, both these ratings are still deep in sub-investment grade - or “junk” - territory.

Pakistan aims to boost its finances after securing a $7 billion International Monetary Fund bailout in September 2024, with the first review set for late February.

“We have the first formal review of the EFF coming through towards (the) end of February,” Aurangzeb said. “I do think we are in good stead for that review.”

IMF extended fund facilities (EFFs) provide financial assistance to countries facing serious medium-term balance of payments problems resulting from structural weaknesses that require time to address.

In October, Aurangzeb said Islamabad had made a formal request for around $1 billion in funding from the IMF via its Resilience and Sustainability Trust.

The RST, created in 2022, provides long-term concessional cash for climate-related spending, such as adaptation and transitioning to cleaner energy. Pakistan is one of the most vulnerable countries to climate change, according to the Global Climate Risk Index.

Aurangzeb said Islamabad will 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 PIA.

He cited better business prospects after the EU aviation regulator lifted its 4-1/2 year ban on the flag carrier, with flights to Europe resuming this month.

Separately, in an exclusive article published as part of the ‘World Economic Forum (WEF)’ annual meeting, Federal Minister for Finance and Revenue Aurangzeb has invited the global stakeholders “to support Pakistan’s journey by investing in priority sectors such as agriculture, information technology (IT), renewable energy and pharmaceutical sectors”.

In the article published on the WEF website, the minister highlights the transformative journey embarked upon by Pakistan in recent years towards economic stabilisation and growth, according to a press release issued here on Tuesday.

“Confronted with formidable challenges, we implemented decisive reforms to build a robust foundation for sustainable and inclusive development. Today, the results of these efforts are becoming evident, with the economy demonstrating resilience and renewed potential,” he said.

Question on the series of economic reforms, he said “I assumed office as Finance Minister in 2024, Pakistan faced severe fiscal and monetary pressures and inflation had surged to 38 percent, straining households and eroding purchasing power.”

The minister said that foreign exchange reserves had dropped dangerously low, barely covering two weeks of essential imports like food and fuel and industrial output had contracted by 10.3 percent, and GDP growth had plummeted to 0.2 perrcent. The compounded effects of Covid-19 and devastating floods causing over $30 billion in damages further tested our resilience.

Recognising the gravity of the situation, “we implemented a series of necessary reforms and these included stabilising the exchange rate, tightening fiscal policies, and curbing inflation through targeted monetary interventions. With support from the IMF’s EFF worth $7 billion, we initiated structural improvements in critical sectors such as energy and taxation. Central to this effort was “Uraan Pakistan”, an economic transformation plan launched in 2024,” he said.

He said that this initiative aims to achieve sustainable, export-led 6 percent GDP growth by 2028 through public-private partnerships, enhanced export competitiveness and optimized public finances and priority sectors include agriculture, energy, textiles, pharmaceuticals and IT.

The finance minister said that a pivotal component of ‘Uraan Pakistan’ is our collaboration with the World Bank on a $20 billion initiative targeting health, education, poverty alleviation, investment and climate resilience.

He said that this transformative partnership addresses critical challenges such as child malnutrition, educational outcomes and clean energy adoption.

By integrating sustainability into our development framework, “we are contributing to global efforts to achieve the United Nations Sustainable Development Goals (SDGs)”, he said.

He said that in July 2024, we introduced a reform-oriented budget with an ambitious goal of raising Rs13 trillion in revenue, a 40 percent increase from the previous year.

He said that these reforms focused on broadening the tax base by targeting under-taxed sectors like agriculture, real estate and trade, while leveraging technology to enhance compliance and transparency. Modernising the Federal Board of Revenue (FBR) has been instrumental in streamlining tax administration.

Meanwhile, to a question on the economic revival in the country, he said that today, Pakistan’s economy is on a path to recovery and inflation has dropped to 4.1 percent, and foreign exchange reserves now provide over two months of import coverage.

He said that goods exports have risen by 7.1 percent, and the IT sector has grown by an impressive 28 percent year-on-year. Pakistan’s global default risk has dropped by 93 percent, signaling renewed faith in the country’s fiscal stability. Local and foreign investors, including global giants like Aramco, BYD and Samsung, are contributing to this economic revival, reflecting Pakistan’s potential as a lucrative investment hub.

Aurangzeb said that the current account has been in surplus for three consecutive months, and investor confidence is at a two-year high and foreign direct investment (FDI) has grown by 20 percent in the first half of fiscal year 2025, reflecting renewed trust in Pakistan’s economic trajectory.

He said that initiatives like the ‘Roshan Digital Account’ have attracted over $9 billion in inflows, while remittances have reached a record $35 billion this year and additionally, Pakistan’s equity market delivered an 87 percent return in dollar terms, underscoring strong investor sentiment.

Internationally, Pakistan’s progress has been acknowledged, with all three top global rating agencies upgrading the country’s sovereign ratings. Moody’s revised Pakistan’s economic outlook to ‘Positive’ in September 2024, recognizing the impact of our policy measure, he said.

Talking on current economic challenges , he said that despite significant achievements, challenges remain and to break free from cycles of external assistance, Pakistan is addressing structural inefficiencies in revenue collection, energy, state-owned enterprises (SOEs) and privatisation.

He said that rightsising the federal government, reforming SOEs, and fostering export-led growth will strengthen internal revenue streams and reduce reliance on international funding programmes.

The minister said that global stakeholders are invited to support Pakistan’s journey by investing in priority sectors such as agriculture, IT, renewable energy, mining and minerals, textiles and apparels, pharmaceuticals, while capitalising on Special Economic Zones (SEZs).

He said that Pakistan’s innovative approaches in taxation and economic stabilisation offer valuable lessons for other developing economies and furthermore, partnerships in climate resilience and sustainable development are crucial for advancing shared global goals.

He said that the cornerstone of Pakistan’s economic transformation is political will and visionary leadership and this journey is not just about overcoming challenges but about harnessing resilience, determination and collective effort.

The finance minister said that with a remarkable workforce, abundant natural resources, and immense production potential, Pakistan is poised to soar to new heights – contributing to regional stability and global economic progress.

Meanwhile, the federal cabinet decided to amend the Toshakhana (Management and Regulation) Act 2024, and constituted a committee headed by Defence Minister Khawaja Asif to recommend changes in the Toshakhana Act 2024 to bring transparency in it.

The met here with Prime Minister Shehbaz Sharif in the chair on Tuesday, and approved changes in Rules of Business 1973 to assign responsibility of Prevention of Electronic Crimes (Peca) Act 2016 from the Ministry of Information Technology to the Ministry of Interior.

It also approved extension in licences of 86 foreign pilots serving in the country and extended foreign validation by three years for inclusion of new pilots from abroad. The meeting was apprised that Pakistan had acquire services of foreign pilots due to Covid-19 and ban on local pilots.

The meeting on recommendation of the Ministry of Law and Justice, approved appointment of Dr Ammar Habib Khan as Member Finance of the National Electric Power Regulatory Authority (Nepra). On recommendation of the Cabinet Division, the cabinet approved rules and regulations for appointment of chairman and members of the National Seed Development and Regulatory Authority.

The forum also approved decisions taken at meetings of the Economic Coordination Committee (ECC) of the cabinet which were held on 6th and 17th of this month.

During the cabinet meeting, the prime minister directed to formulate a new effective plan to extend PM Relief Package to deserving people. He also issued directives to constitute a committee to expedite restructuring of Utility Stores Corporation.

The prime minister said that the New Gwadar International Airport would not only benefit the economy of Balochistan, but the entire country. He said the airport, constructed with 230 million dollars Chinese grant, is a gift for Pakistan from China and we should honour it. “We should value this this grant which China gave from its resources,” he said.

He added that the start of flight operations from Gwadar airport was also welcoming.

He said the elements involved in killings in Balochistan were not only against the province, but are the enemies of Pakistan. Shehbaz said creating hurdles in completion of Gwadar Port was also animosity with Pakistan. He said the enemies of Pakistan did not want operationalisation of Gwadar Port.

The prime minister said that witnessing a record increase of IT exports to the tune of $346 million in December last year was welcoming. “We should also focus to push for more IT exports.”

He said the government was also focusing on promotion of electric vehicles in the country and taking a number of steps in this connection.

Referring to the 10-Year Country Partnership Framework for Pakistan announced by the World Bank, he said Pakistan would get $20 billion in loans intended to develop multiple social sectors and infrastructure.

He urged the relevant ministries to make swift and collective efforts to achieve the objectives of the Framework and overcome the hiccups in the process.

He said all economic indicators were showing a positive trajectory which was a testament to government’s efforts to stabilise the economy. He said the government was also making hectic efforts to provide the best facilities to Pakistani pilgrims during Haj this year.

The prime minister paid glowing tributes to the armed forces and the people of Pakistan for rendering matchless sacrifices to eliminate Fitna- al-Khwarij from the country. “The nation will remember unprecedented sacrifices of these martyrs forever,” he said.