Govt signs $375 million syndicated loan with UAE banks

ISLAMABAD: The government had signed a $375 million syndicated loan agreement with banks in the United Arab Emirates, made up of conventional and Islamic banking tranches, sources said on Saturday.

The loan agreement was signed in June and tranches were fully subscribed by a syndicate of leading UAE banks, they added.

Emirates NBD Capital Limited is global coordinator while the transaction was anchored and arranged by Commercial Bank of Dubai, Emirates NBD Bank, Noor Bank, Dubai Islamic Bank, Mashreqbank and Sharjah Islamic Bank.

The loan, with a one-year maturity, would funds to offset a drop in foreign currency reserves and to stave off the pressure on balance of payments.

The government would retire the loan an equivalent amount in local-currency borrowing, sources said. “The loan will change the debt profile but it will not increase overall debt,” one source added.

In 2017, Pakistan raised a $2.5 billion bond a $1 billion sukuk and a $1.5 billion conventional bond.

The country is very active in the loan market recently, as balance of payments pressure mount. It raised a $700 million 10-year loan in 2017 with a partial guarantee from the International Bank for Reconstruction and Development, a unit of the World Bank. In 2018, the government was once again in the market for a $450m one-year loan led by Credit Suisse and Industrial and Commercial Bank of China.

The government has secured commercial loans to meet its financing requirements for the outgoing fiscal year. Major debt payments are in pipeline and the government had to pay back $1 billion on account of Eurobond obtained in 2014. During the next fiscal year, repayments of around $9.5 billion are due.

The foreign currency reserves are depleting at rapid pace mainly because of pressure on current account deficit as it crossed $1 billion mark in each months in March and April of 2019.

Despite getting dollar inflows from friendly countries, including China, Saudi Arabia and UAE to the tune of $9.4 billion in the outgoing fiscal year 2018-19, the foreign currency reserves held by the State Bank of Pakistan continued to decline and now stood at less than $8 billion.

Now the government is making efforts to shore up dwindling foreign currency reserves and one viable and easy option is getting commercial loans from foreign banks.

Although the government has chosen a policy of reducing reliance on short-term commercial borrowing, they had to get available loans in order to keep foreign reserves at certain level.