Foreign loan inflows slow down

Pakistan has struggled to secure foreign loans during the first half of the current fiscal year, receiving only $5.6 billion which is only about a quarter of the annual budget estimate. The low disbursements have caused a severe drop in the foreign exchange reserves held by the central bank. The main reason for the low amount of loans was the government's inability to complete the ninth review of the IMF loan program in a timely manner.

The IMF has announced that it will send a mission to Pakistan for talks, but the conditions listed in its statement suggest that the government will have to make extra efforts to finalize negotiations by February 9. In December 2022, Pakistan received only $532 million in loans, which were not enough to make major repayments.

In the past week, Pakistan paid $828 million to Chinese financial institutions, causing the official foreign exchange reserves to decrease to $3.1 billion. The largest lender so far has been the Asian Development Bank, which has disbursed $1.9 billion, or one-third of the annual estimate.

Pakistan's gross financing needs for FY23 have been assessed by the IMF at $34 billion and an additional $6 billion for increasing foreign currency reserves, bringing the total borrowing amount to $40 billion. However, the government has only budgeted $22.8 billion in foreign loans for the fiscal year 2022-23. The country's borrowing options have been limited due to the downgrading of its outlook to negative and debt rating to junk status by international credit rating agencies, increasing borrowing costs and closing the doors to floating Eurobonds.

Pakistan has only received $200 million in foreign commercial loans so far this fiscal year, far from the estimated $7.5 billion. The government now expects to receive $6.3 billion in commercial loans, which is on the high end. Its plan to borrow $2 billion through sovereign bonds failed due to its poor credit rating and expected high interest cost.