Pakistan to seek biggest-ever loan to repay debts

By: News Desk      Published: 02:50 PM, 31 May, 2020
Pakistan to seek biggest-ever loan to repay debts

The Pakistan government has decided to seek biggest-ever loan in country’s history to repay its whopping foreign debt as the Finance Ministry mulling borrowing $15 billion in foreign loans during the next financial year, reported 24NewsHD TV channel, quoting sources on Sunday.

The sources said that the huge loan will be taken from the Asian Development Bank, China, Saudi Arabia and other financial institutions.

It is estimated that nearly $10 billion will be used to return the maturing loans while remaining money will become part of the external public debt which soared to $86.4 billion as of end-March this year.

New loans will be obtained to repay old ones as per the debt repayment scheduled while in the next fiscal year Pakistan government has to repay the $10 billion as the number of interest payments on loans has been multiplying.

As per media reports, the External Debt in Pakistan decreased to 109949 USD Million in the first quarter of 2020 from 111047 USD million in the fourth quarter of 2019. It is pertinent to note that in Pakistan, external debt is a part of the total debt that is owed to creditors outside the country.

There are several indicators to which the government has decided to take the biggest-ever loan in the history of Pakistan, including Covid-19 impact on the economy and since pandemic hit the country there has been economic slowdown that forcing Pakistan to cut the key interest rate further to 8 percent while rupee value hitting a record low.

The State Bank said wholesale inflation eased to near 2-year low, and Pakistan’s inflation rate at a 10-month low of 9.5 per cent while Moody's changed Pakistan outlook to stable.

Pakistan and IMF

Pakistan and the IMF since 1958 have signed 21 agreements including the 12 Stand-by Agreements (SBAs) or as in economists call bail-outs with the IMF. It is relevant to mention here that these SABs have to be repaid within 3.5 and 5 years but due to the COVID-19.

In April 2020, Pakistan got its unexpected economic relief amid COVID-19. On April 16, IMF under its Rapid Financing Instrument (RFI) scheme approved a loan of $1.4 billion for Pakistan.