Pakistan secures $27.2 billion in foreign loans, rollovers during FY26

Pakistan secured $27.2 billion in foreign loans and rollovers during FY2025-26, including $16 billion in fresh financing, $2.2 billion from the IMF and debt rollovers of $5 billion from Saudi Arabia and $4 billion from China, with most of the funds used for budgetary support, external debt repayments and foreign exchange reserve building.

The IMF disbursements and the two major rollovers were not included in the ministry’s foreign economic assistance report.

Of the total financing, around $24 billion was obtained for budgetary support, external debt servicing and reserve accumulation. Project-related financing accounted for only $3.4 billion, or nearly 13% of the total.

Pakistan’s gross foreign exchange reserves stood at $18.5 billion at the end of June, supported by debt rollovers, refinancing and the State Bank of Pakistan’s dollar purchases from the market.

The country’s continued reliance on foreign borrowing comes as exports fell 6% to $30 billion in FY2025-26, remaining around $40 billion below imports, according to the Pakistan Bureau of Statistics. Foreign direct investment also declined to less than $2 billion.

Pakistan’s current account returned to a deficit of $139 million during the fiscal year, reversing a surplus of $1.84 billion in FY2024-25. Record remittances were insufficient to offset the impact of higher imports.

Finance Minister Muhammad Aurangzeb said Pakistan was well-positioned for the rollover of another $3 billion Saudi loan obtained in April for three months.

Saudi Arabia has placed total cash deposits of $8 billion with the State Bank of Pakistan at interest rates ranging from 4% to 4.5%. The deposits have repeatedly been extended upon maturity as Islamabad remains unable to repay them, while the maturity periods have gradually shortened as the amount has increased.

The continuation of the IMF’s three-year programme also depends on the rollover of these deposits. Without extensions, Pakistan could face an external financing gap that may complicate IMF Executive Board approval for future loan tranches.

China has placed $4 billion in cash deposits with Pakistan at an interest rate exceeding 6%. It also disbursed $393 million in guaranteed loans during FY2025-26, primarily for asset purchases.

The Ministry of Finance raised another $1 billion through Panda Bonds and a private placement backed by Eurobonds.

Pakistan issued $255 million in Panda Bonds with guarantees from the Asian Development Bank and the Asian Infrastructure Investment Bank, reflecting constraints created by the country’s weak sovereign credit rating.

The government also secured $1.9 billion in commercial financing, including $1.7 billion from China Development Bank and $200 million from Standard Chartered Bank, London.

Multilateral institutions provided around $7 billion during the year. This included $2.6 billion from the IMF, although the Ministry of Economic Affairs recorded only $421 million in its disbursement sheet, excluding another $2.2 billion received for balance-of-payments support.

The Asian Development Bank disbursed $1.8 billion, around $400 million less than in the previous fiscal year, while the World Bank released nearly $2 billion.

The Islamic Development Bank provided $1 billion, while Saudi Arabia extended another $1 billion under an oil financing facility carrying an interest rate of 6%.

The oil facility expired in April, and Pakistan is now seeking a new $6.7 billion arrangement with a repayment period of 15 years.

The government also raised more than $3 billion through the Naya Pakistan Certificate scheme, another relatively expensive source of external financing.

Pakistan’s debt-to-GDP ratio and gross financing requirements remain above levels considered sustainable. Gross financing needs exceeding 15% of GDP are generally viewed as unsustainable, and previous Ministry of Finance projections indicate that Pakistan will remain above that level over the medium term.

The IMF estimates Pakistan’s gross external financing requirement at $21.2 billion for the current fiscal year. The requirement is projected to rise to $30 billion in the following year, when the existing IMF programme will have expired in September.