Pakistan has turned down a $490 million commercial loan offered by the International Islamic Trade Finance Corporation (ITFC), the trade finance arm of the Islamic Development Bank Group, because of its high cost. According to sources, the finance ministry's Debt Management Office took the decision last week; the facility had been offered for one year.
The debt office had been hoping for a cost of around 6%, sources said, but the ITFC's all-in cost of about 8% was higher even than the 6.1% yield on Pakistan's bond maturing in December 2027. The finance ministry has now asked the Economic Affairs Division to find a new facility, from the ITFC or another lender, at competitive rates. The ministry's spokesperson did not respond to a request for comment.
The refusal comes as Pakistan's gross financing needs remain high. The finance ministry's borrowing plan for 2026-27 puts them at Rs28.647 trillion, about 20% of GDP, while the IMF's latest report showed them at around 22% of GDP for last fiscal year. The IMF also projects the current account deficit at 1% of GDP, nearly $4.5 billion, at least $1.5 billion above official estimates.
In August the government took a $300 million loan from a local bank, and in September it raised $3 billion through Eurobonds, with coupons of 7.5% on a five-and-a-half-year bond and 7.9% on a 10-year bond. Saying no to costly money may help contain interest bills, but with financing needs this large, finding a cheaper replacement will be a real test for Islamabad.