Pakistan to secure $600 million loan from Standard Chartered to bolster forex reserves

Pakistan has decided to secure a $600 million short-term loan from Standard Chartered Bank (SCB) to replenish its foreign exchange reserves, following a significant shortfall in expected foreign commercial loans and sovereign bond disbursements, The Express Tribune reported. 

The loan, with a term of six to nine months, carries an interest rate of 6.3%, which is slightly lower than the rate Pakistan is paying on its $3.5 billion debt from the United Arab Emirates (UAE). The government had previously requested the UAE to lower the interest rate on its loan, citing improved credit ratings and economic conditions.

The SCB facility will be drawn against imports of crude oil and gas. The formal agreement is expected to be signed soon, allowing the government to access the loan. The rate is based on the Secured Overnight Financing Rate (SOFR) plus 2.6%, with SOFR standing at 3.66% on Tuesday.

The loan is part of Pakistan's efforts to tap both new and traditional external financing channels. The International Monetary Fund (IMF) is also reviewing the country’s foreign debt repayments and disbursements to help sustain payments without straining foreign reserves.

For the current fiscal year, the government had budgeted $3.1 billion in foreign commercial loans, as part of a plan to raise $26 billion in foreign loans. However, only $54 million has been disbursed in foreign commercial loans in the first half of the fiscal year.

Pakistan also repaid a $700 million loan to the China Development Bank (CDB) this week, reducing its official foreign exchange reserves to $15.5 billion as of February 10. The government hopes to refinance the $700 million loan in June, along with another $1 billion commercial loan.