Pakistan has rejected a $490 million commercial loan offered by the Islamic Development Bank (IsDB) Group. The government declined the financing because its interest rate was considered too high.
The one-year loan facility was offered by the International Islamic Trade Finance Corporation (ITFC). The organisation operates as the trade finance arm of the IsDB Group.
The Finance Ministry’s Debt Management Office (DMO) rejected the offer last week. The decision comes as Pakistan continues to face significant borrowing requirements and rising financing costs.
The government had hoped to secure the loan at an interest rate of around 6 percent. However, the ITFC facility carried an estimated overall cost of approximately 8 percent.
This rate was also higher than the yield on Pakistan’s December 2027 bond. The bond was trading at around 6.1 percent, making the proposed loan less attractive.
Following the rejection, the government asked the Economic Affairs Division to explore alternative financing options. Officials are expected to seek more competitive terms from the ITFC or another lender.
Pakistan Seeks Cheaper Financing Options
Pakistan continues to require substantial funding to meet its financial obligations. However, the government is trying to avoid expensive borrowing where more affordable options may be available.
The rejection highlights the pressure on authorities to balance financing needs against borrowing costs. Securing loans at lower rates could help reduce the burden of debt servicing.
In August, Pakistan obtained a separate $300 million loan from United Bank Limited. The government granted an income tax exemption on the bank’s profit to secure the financing.
This arrangement came only a few months before the rejection of the proposed ITFC facility. It also reflects the government’s continued reliance on different sources of commercial financing.
Pakistan’s Gross Financing Needs Remain High
According to the Finance Ministry’s borrowing plan for fiscal year 2026-27, gross financing needs are projected at Rs. 28.647 trillion. This represents approximately 20 percent of the country’s gross domestic product (GDP).
The government estimates net external financing at Rs. 813 billion, equivalent to around $2.8 billion. Multilateral lenders are expected to provide most of this external funding.
Meanwhile, the International Monetary Fund (IMF) projects Pakistan’s current account deficit at 1 percent of GDP. This amounts to nearly $4.5 billion, according to its latest report.
The estimate is at least $1.5 billion higher than the Pakistani authorities’ projection. Domestic estimates place the deficit between $2.5 billion and $3 billion.
International Borrowing Costs Continue to Rise
Pakistan has also faced higher costs when borrowing from international capital markets. In September, the country raised $3 billion through its largest-ever Eurobond issuance.
The issuance included a five-and-a-half-year bond carrying a yield of 7.5 percent. A separate 10-year bond carried a yield of 7.9 percent.
Earlier this year, Pakistan signed three loan agreements worth $603 million with the Islamic Development Bank. These agreements provided another source of financing for the country.
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The latest rejection indicates that Pakistan remains interested in external financing but is weighing the cost carefully. The government will now need to identify alternatives that meet its funding requirements on more competitive terms.
