Pakistan's $600 Million Loan Reveals Deepening Economic Crisis

According to an Asian News Post report, the loan is priced at SOFR plus 2.6 per cent -- translating to an interest rate of around 6.3 per cent -- aimed at supporting foreign exchange reserves, which have come under strain due to a shortfall in expected foreign commercial inflows.

Drawn against energy imports, the facility comes at a time when Pakistan has received only $54 million of the $3.1 billion it had budgeted under foreign commercial loans for the current fiscal year, the report noted.

It further pointed out that of the planned $26 billion in total external borrowing, only $5.7 billion has materialised so far, including disbursements from the International Monetary Fund (IMF).

At the same time, the country recently repaid a $700 million loan to the China Development Bank, with foreign exchange reserves declining to $15.5 billion (as of February 10).

The government is expected to seek refinancing of this amount in June, along with another $1 billion commercial loan.

According to the report, analysts have termed "budgetary fiction" a key factor driving the financial imbalance.

Despite plans to raise $400 million through sovereign bond issuance this fiscal year, no such transaction has taken place so far.

Similarly, a proposed $250 million Panda bond issue has seen little progress.

The broader macroeconomic backdrop remains challenging. Exports have declined by 7 per cent in the first seven months of the fiscal year, while foreign direct investment has dropped over 41 per cent to $981 million.

The government is targeting foreign exchange reserves of $18 billion by June, banking on improved remittances, fresh borrowing, and continued deposits worth $12.5 billion from Saudi Arabia, the UAE and China.

Economists have also flagged concerns over rising public debt and fiscal slippages. Pakistan's public debt has reached around PKR 78.5 trillion, or 68 per cent of GDP, while interest payments have surged 43 per cent to PKR 6.4 trillion.

They noted that structural issues, including weak revenue mobilisation, reliance on optimistic budget projections, and increased supplementary spending, continue to undermine fiscal discipline.

In the absence of strong institutional oversight, analysts said Pakistan remains dependent on external financing to maintain macroeconomic stability, with short-term borrowing increasingly becoming a recurring necessity.

- IANS