In a bid to address its external financing needs, Pakistan is planning to secure up to $4 billion from Middle Eastern commercial banks by the next fiscal year, according to Jameel Ahmad, Governor of the State Bank of Pakistan (SBP). The move is part of a broader strategy to stabilize the country’s economy amidst challenging financial conditions.
During an interview with Reuters, Ahmad revealed that the government is also working to roll over $12 billion in loans from key allies, including China, Saudi Arabia, and the United Arab Emirates (UAE). These efforts are aimed at easing Pakistan’s financial burdens and ensuring the continuity of critical development projects.
The SBP governor further highlighted that Pakistan is in the advanced stages of negotiating $2 billion in additional external financing. This funding is crucial for securing the approval of a $7 billion bailout program from the International Monetary Fund (IMF). To close a $2 billion financing gap, the government has also requested an additional $1.2 billion loan from Saudi Arabia.
While Pakistan and the IMF reached an agreement on the loan program in July, the approval is contingent upon receiving timely confirmation of necessary financing assurances from Pakistan’s development and bilateral partners. However, according to the IMF’s schedule, Pakistan is not currently on the lender’s agenda until September 4, 2024.
Regarding Pakistan’s monetary policy, Ahmad noted that recent interest rate cuts have positively impacted the economy. Inflation, which peaked at over 30% in 2023, has slowed significantly, with the annual consumer price index inflation dropping to 11.1% in July. Despite the reductions, the current account remains under control.
“The Monetary Policy Committee will review all these developments,” Ahmad stated, hinting that future rate decisions will be data-driven. The central bank has already reduced interest rates from a historic high of 22% to 19.5% over two consecutive meetings. The next monetary policy review is scheduled for September 12.
Looking ahead, Ahmad emphasized that the central bank’s focus would shift towards promoting economic growth and addressing related socioeconomic challenges. However, he reaffirmed that ensuring price and financial stability remains the SBP’s primary mandate.
As Pakistan navigates these complex financial challenges, the government’s efforts to secure external financing will be crucial in stabilizing the economy and fostering sustainable growth.