Finance Minister Muhammad Aurangzeb announced on Tuesday that Pakistan has finalized a $1 billion loan agreement with two Middle Eastern banks, with interest rates ranging between 6% and 7%. This was revealed during an interview at the World Economic Forum in Davos. The loans, which are short-term and up to one year, include one bilateral loan and one for trade financing.
In August, State Bank of Pakistan Governor Jameel Ahmad stated that the country aims to secure up to $4 billion from Middle Eastern banks by the next fiscal year. Mr. Aurangzeb also expressed hopes of an upgrade in Pakistan’s credit rating, aiming to move toward a “B” rating, ideally before the fiscal year ends in June 2025. Moody’s had upgraded Pakistan’s rating to “Caa2” in August, and Fitch improved it to “CCC+” in July, following an agreement with the International Monetary Fund (IMF). However, these ratings remain in the “junk” category.
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Pakistan’s government is working to stabilize its finances after securing a $7 billion IMF bailout in September 2024, with the first review of the Extended Fund Facility (EFF) scheduled for late February. Mr. Aurangzeb expressed confidence in the country’s progress for this review. The EFF provides financial aid to address structural weaknesses causing medium-term balance of payments challenges.
Additionally, Pakistan has formally requested $1 billion in funding from the IMF’s Resilience and Sustainability Trust (RST), which supports climate-related initiatives like clean energy transition and adaptation projects. Discussions on this funding will advance when the IMF mission visits for the EFF review. Pakistan, one of the nations most vulnerable to climate change, hopes to finalize the RST arrangements within the next 6-9 months.
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The government is also making efforts to reform state-owned enterprises. It plans to revisit the privatization of Pakistan International Airlines (PIA), following last year’s unsuccessful attempt to sell a 60% stake. Mr. Aurangzeb anticipates a positive outcome within the next five to six months. He highlighted better prospects for PIA after the European Union lifted its 4.5-year ban on the airline, enabling flights to Europe to resume this month.
