To secure crucial foreign financing amidst an uncertain International Monetary Fund (IMF) deal, the Pakistani government is strategizing to raise $2 billion through Eurobonds in the upcoming fiscal year. This move comes as the country’s foreign loan disbursement projections remain fluid, with external debt inflows from multilateral and bilateral creditors estimated to be nearly 30% lower than initially anticipated. However, Pakistan’s ability to tap into capital markets is contingent upon winning the trust of the IMF, as the absence of an IMF program could hamper its prospects for obtaining new foreign commercial loans and issuing sovereign bonds.
Pakistan’s current fiscal year had initially expected to receive $3 billion from the IMF, but the actual disbursement thus far amounts to only $1.2 billion. Prime Minister Shehbaz Sharif recently discussed the possibility of extending the $6.5 billion loan program with IMF Managing Director Kristalina Georgieva. However, sources suggest that the IMF has indicated there is no possibility of further extending the existing program set to expire on June 30.
Given the uncertainty surrounding the IMF deal, the Ministry of Finance is developing two scenarios for the next fiscal year—one with IMF projections and one without. In the absence of an IMF program, the inflows are expected to be insufficient, leading the government to rely heavily on financial support from China.
Realistically, Pakistan anticipates China’s assistance in refinancing $3.5 billion in foreign commercial loans and an additional $4 billion in deposits from the State Administration of Foreign Exchange (SAFE). However, Pakistani authorities are keen on securing additional loans from China to meet their growing financing needs.
Without the support of an IMF program, combined foreign loan disbursements from multilateral and bilateral creditors are estimated to reach $6.2 billion, which falls short of meeting the country’s mounting financing requirements.
According to sources, the government anticipates receiving $5.3 billion from multilateral lenders in the next fiscal year—a decrease of $2.3 billion compared to the original estimate for the current year. The budget for new loans from the World Bank is projected at $2.3 billion for the upcoming fiscal year, down from the initial estimate of $2.6 billion. Similarly, expected loans from the Asian Development Bank (ADB) are projected at $2 billion, lower than this year’s projection of $3.2 billion.
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The Islamic Development Bank (IDB) disbursements are expected to decrease, with the government projecting only $500 million for the next fiscal year compared to this year’s budgeted amount of $1.2 billion. The Asian Infrastructure Investment Bank (AIIB) is expected to provide $361 million, a decrease from the $579 million received in the current fiscal year.
Bilateral creditor inflows are estimated to reach $890 million for the fiscal year 2023-24, lower than the $1 billion estimate for the current year. Out of this amount, $600 million is projected to come from Saudi Arabia as deferred oil payments, with Chinese disbursements expected to be less than $20 million.
Official data indicates that from July to April 2023, foreign loan disbursements amounted to $8 billion, a decrease of $4.8 billion (38%) compared to the same period of the previous fiscal year. The insufficient disbursements have put a strain on Pakistan’s foreign exchange reserves, which currently stand at just $4 billion.
The primary factor contributing to the low disbursements is the government’s failure to ensure the timely completion of the ninth review of the IMF program. As a result, the actual disbursements only represent 35% of the annual budget estimate of $22.8 billion.
