Pakistan has declined a proposed $490 million commercial loan from the Islamic Development Bank Group after determining that the borrowing cost was too high, according to government officials.
The one-year financing facility was offered by the International Islamic Trade Finance Corporation, a member of the Islamic Development Bank Group. Officials said the overall cost of the proposed borrowing was around 8%.
Pakistan’s debt management authorities had reportedly expected financing at a rate closer to 6%. The difference of about two percentage points made the proposed facility less attractive for the country, leading authorities to reject the offer.
The decision comes as Pakistan faces significant financing requirements. The Finance Ministry estimates the country’s gross financing needs at approximately 20% of gross domestic product, highlighting the scale of funding required to meet its financial obligations.
With borrowing costs remaining an important consideration, the government is seeking alternatives that can provide financing on more favourable terms. The Finance Ministry has directed the Economic Affairs Division to explore other loan options available at competitive rates.
The move reflects the government’s focus on controlling the cost of new borrowing while managing its broader financing requirements. Accepting expensive commercial financing could increase the financial burden associated with debt servicing, making the terms of new loans an important consideration for authorities.
The rejected facility was for a period of one year, meaning the financing would have carried a relatively short repayment horizon. Officials are now expected to examine other potential sources of funding as they work to meet the country’s financing needs.
Pakistan’s decision to turn down the offer shows that the government is weighing both the availability of funds and the cost attached to them when considering new external borrowing.
Further financing arrangements will depend on whether the Economic Affairs Division can secure an alternative facility at a lower and more competitive cost.
