Commercial Financing Deal Contingent on ADB Guarantee as Islamabad Aims for Increased Foreign Exchange Holdings
Key Takeaways:
i) Pakistan has reached an agreement with two foreign commercial banks for a $1 billion loan at an approximate interest rate of 7.6%.
ii) The disbursement of this five-year commercial loan is contingent upon the approval of a $500 million guarantee from the Asian Development Bank (ADB), with the ADB board expected to decide on May 28th.
iii) This loan is part of Pakistan’s strategy to increase its gross reserves to over $14 billion by the end of June, supported by remittances and the refinancing of Chinese loans.
Money Matters Monitoring – A recent report in The Express Tribune, authored by Shahbaz Rana and titled “$1b foreign loan deal reached,” highlights Pakistan’s efforts to secure international financing to strengthen its foreign exchange reserves. According to the article, “Pakistan and two foreign commercial banks have reached an understanding for a $1 billion loan at an interest rate of around 7.6%, which Islamabad is obtaining on the back of Asian Development Bank (ADB) guarantee due to its low credit rating.”
The deal, reportedly negotiated with Standard Chartered Bank (SCB) and Dubai Islamic Bank (DIB), is significant as it marks the first foreign commercial loan with a five-year tenure, potentially reducing refinancing risks for Pakistan. However, the finalization and disbursement of the funds are subject to the ADB’s approval of a $500 million guarantee. Government sources indicated that Pakistan could potentially borrow up to $1.5 billion against this guarantee.
This move comes as Pakistan aims to boost its gross reserves from the current $10.6 billion to over $14 billion by the end of the fiscal year in June. Sources suggest that this increase is expected to be driven by improved remittances, the newly secured $1 billion commercial loan, and the anticipated refinancing of $1.3 billion in Chinese loans.
It is worth noting that in September of the previous year, the government had considered a term sheet with SCB London for two loans totaling $600 million at a higher interest rate of around 11%. However, this deal was deferred following a report in The Express Tribune, pending an improvement in the country’s macroeconomic conditions.
The Economic Affairs Division reported that in the first eight months of the current fiscal year, Pakistan secured nearly $12 billion in foreign loans, including $6 billion through rollovers from China, Saudi Arabia, and the UAE. The government’s target for the entire fiscal year is $19.2 billion in foreign loans.
Pakistan’s external debt stood at $131.1 billion in December 2024. The government has budgeted $23.4 billion in foreign loans for the current fiscal year, including $13 billion in rollovers from friendly countries. The State Bank of Pakistan’s reserves were $10,572.4 million as of April 11, 2025.
The Asian Development Bank forecasts Pakistan’s economy to grow by 2.5% in FY2025, citing improved macroeconomic stability due to ongoing reforms and the IMF Extended Fund Facility arrangement.
In conclusion, Pakistan’s pursuit of this $1 billion commercial loan, backed by an ADB guarantee, reflects its ongoing efforts to secure necessary financing and bolster its foreign exchange reserves amidst a challenging economic landscape. The outcome of the ADB board’s decision in May will be crucial for the finalization of this deal.
