Pakistan has finalized a $1 billion loan agreement with two Middle Eastern banks to stabilize its financial position and support ongoing reforms. The finance minister, Muhammad Aurangzeb, announced the deal on Tuesday during the World Economic Forum in Davos, emphasizing the critical role of foreign financing in addressing the country’s economic challenges.
Key Details of the Loan Agreement
Aurangzeb revealed that the loan, secured at an interest rate of 6-7%, consists of short-term agreements with two institutions, one bilateral and one for trade financing. The loans, with a maturity of up to one year, are part of Pakistan’s broader strategy to boost its foreign reserves.
Improving Credit Ratings
The government is also working to improve Pakistan’s credit ratings, which remain in sub-investment-grade territory.
Pakistan’s credit ratings saw slight improvements in 2024.
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IMF Support and Economic Goals
Pakistan’s financial stability has been bolstered by a $7 billion IMF bailout secured in September 2024. The first review of the extended fund facility (EFF) is set for February, and Aurangzeb believes Pakistan is well-prepared for the review.
The government has also requested $1 billion from the IMF’s Resilience and Sustainability Trust (RST). The RST, designed to fund climate-related initiatives, aligns with Pakistan’s need to address climate vulnerabilities. Discussions on this funding will advance during the upcoming IMF review.
Focus on Privatization and Enterprise Reforms
Efforts to reform state-owned enterprises are underway as part of the bailout conditions. Aurangzeb highlighted the government’s renewed focus on privatizing Pakistan International Airlines (PIA). This initiative follows last year’s failed attempt to sell a 60% stake in the debt-laden carrier.
With the European Union recently lifting its 4.5-year ban on PIA, flights to Europe have resumed, improving the airline’s business prospects. The government aims to complete the privatization process within the next five to six months.
Long-Term Goals for Stability
The $1 billion loan and the broader financial initiatives reflect Pakistan’s commitment to economic reforms and financial sustainability.
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