Pakistan secures $1 billion loan dollars from two Middle Eastern banks

Finance Minister Muhammad Aurangzeb announced on Tuesday that Pakistan has finalized the terms of a $1 billion loan from two Middle Eastern banks, marking another step in the country’s efforts to secure much-needed financing.

The loans, agreed at an interest rate of 6-7%, were confirmed during an interview at the annual meeting of the World Economic Forum. Aurangzeb revealed that the agreements include a bilateral loan and a trade finance agreement, both with a short-term tenure of up to one year.

This is part of Pakistan’s broader plan to raise $4 billion from Middle Eastern commercial banks by the next fiscal year, State Bank of Pakistan Governor Jameel Ahmad said earlier.

Aurangzeb expressed optimism about Pakistan’s economic trajectory, highlighting plans to work with credit rating agencies for a possible upgrade to a single B rating. “Ideally, I would like to think that some action in this direction can take place before our fiscal year ends in June,” he said.

Currently, Pakistan saw a slight improvement earlier this year when Moody’s upgraded its rating to Caa2 in August, citing better macroeconomic conditions. Similarly, Fitch raised its rating to CCC+ in July following a staff-level agreement with the International Monetary Fund (IMF).

Pakistan is seeking to shore up its finances under the IMF’s $7 billion Expanded Fund (EFF) secured in September 2024. The first review of the program is scheduled for the end of February 2025, with Aurangzeb optimistic about the fulfillment of the requirements.

The government also requested $1 billion from the IMF’s Resilience and Sustainability Trust (RST) in October for climate-related initiatives. Discussions are expected to progress during the upcoming IMF mission. “I hope in the next six to nine months, we can get there with the Fund as well,” Aurangzeb said.

Aurangzeb also mentioned plans to revive Pakistan International Airlines (PIA) through privatisation. After a failed attempt last year to offload a 60% stake in the debt-laden carrier, it expects progress in the next five to six months.

This comes as the EU recently lifted a 4.5-year ban on PIA, allowing flights to Europe to resume, signaling an improved business outlook.

Given Pakistan’s vulnerability to climate change, the government aims to leverage RST for projects focused on adaptation and clean energy transition. The program offers financing on favorable terms to address long-term climate challenges.

With the IMF review and financial regulations in motion, Pakistan remains focused on stabilizing its economy while addressing structural weaknesses. However, challenges in privatisation, credit enhancements and climate finance continue to test the government’s resolve.