Pakistan has rejected a $490 million commercial loan offered by the Islamic Development Bank (IsDB) Group because of its high borrowing cost, despite the country’s financing needs remaining close to 20 percent of GDP.
The one-year loan was offered by the International Islamic Trade Finance Corporation (ITFC), the IsDB Group’s trade finance arm. Officials said the Finance Ministry’s Debt Management Office rejected the offer last week.
Why Pakistan Rejected the Loan
The Debt Management Office was targeting a borrowing cost of around 6 percent. However, the ITFC offered the facility at an all-in cost of approximately 8 percent, making it more expensive than Pakistan’s December 2027 bond, which was trading at 6.1 percent.
The Finance Ministry has asked the Economic Affairs Division to explore alternative financing at more competitive rates, either through the ITFC or another lender.
The ministry’s spokesperson did not respond to a request for comment.
Pakistan’s Financing Needs Remain High
The rejection comes a few months after Pakistan secured a $300 million loan from United Bank Limited in August. The government granted an income tax exemption on the bank’s profit to secure the financing.
According to the Finance Ministry’s borrowing plan for FY2026-27, Pakistan’s gross financing needs are projected at Rs. 28.647 trillion, equivalent to around 20 percent of GDP.
Net external financing is estimated at Rs. 813 billion, or approximately $2.8 billion, with multilateral lenders expected to provide most of the funding.
The International Monetary Fund (IMF) has projected Pakistan’s current account deficit at 1 percent of GDP, or nearly $4.5 billion. This is at least $1.5 billion higher than the $2.5 billion to $3 billion estimate given by Pakistani authorities.
Pakistan has also faced higher borrowing costs in international markets. In September, the country raised $3 billion through Eurobonds, including a five-and-a-half-year bond carrying a 7.5 percent yield and a 10-year bond with a 7.9 percent yield.
Earlier this year, Pakistan signed three loan agreements worth $603 million with the IsDB.
