In Islamabad, concerns are rising about Pakistan’s ability to secure approximately $4.5 billion in external financing as part of its financial plan. Additionally, there is a possibility that the budget may need to be increased by an additional 1 trillion rupees due to the underestimated costs associated with servicing debt. These issues have the potential to pose significant challenges during the upcoming review.
Insiders within the finance ministry have revealed that these financial gaps, both in terms of external financing and interest payments, stem from overly optimistic budget estimates. To address these concerns, a series of meetings have been convened in recent days.
If these issues remain unaddressed, they could complicate matters during the first review of Pakistan’s $3 billion IMF program scheduled for November this year.
Sources indicate that there is apprehension about not being able to secure at least $4.4 billion of foreign loans, compared to the initial estimate of $20 billion for external financing. The Ministry of Finance has raised this matter at the highest level and initiated discussions between the Economic Affairs Division and the Finance Division to bridge this financing gap.
Furthermore, it was previously noted in June that the budget allocation for interest payments may fall short of actual requirements. The government had anticipated recovering $4.5 billion in loans from foreign commercial banks and an additional $1.5 billion through Eurobond issuance.
According to sources, the Finance Ministry has assessed that due to Pakistan’s low credit rating and the prevailing high global interest rates, obtaining non-Chinese trade loans of about $3 billion is unlikely. Nevertheless, there remains hope for securing approximately $1 billion in Chinese commercial financing and around $600 million from other sources.
The chances of raising $1.5 billion through bond issuance are also deemed quite slim. Consequently, the government is exploring alternative sources for external financing, including additional borrowing from multilateral lenders and privatization.
In a recent development, Caretaker Finance Minister Dr. Shamshad Akhtar has instructed the Finance Ministry to reassess the financing plan in light of current economic conditions, with a specific focus on obtaining funds from non-Chinese foreign commercial banks through loans and sovereign bonds.
Furthermore, the Economic Affairs Division has been tasked with exploring the possibility of increasing loans from multilateral and bilateral lenders. The government had initially estimated receiving $6.2 billion in loans from such sources for the current fiscal year. In July, Pakistan received $5.1 billion in foreign loans, with $3 billion coming from Saudi Arabia and the United Arab Emirates, and $1.2 billion from the IMF.
While disbursements under the IMF program have yet to commence, the government had anticipated a swift start following the approval of the IMF loan. However, State Bank regulations have posed a hindrance to this funding. If provincial development activities accelerate and the State Bank relaxes its rules, multilateral and bilateral lenders could potentially disburse more than $7 billion during the current financial year.
Another challenge faced by the Ministry of Finance relates to a discrepancy in accounts. The estimated 7.3 trillion rupees allocated for interest payments has surged to over 8 trillion rupees. The government’s interest payment projection was based on an 18 percent interest rate, but a 22 percent interest rate would necessitate an additional 1 trillion rupees. Even if all other projections remain constant, the federal budget deficit could expand to 8.5 trillion rupees, up from the initial estimate of 7.5 trillion rupees.
