ISLAMABAD, October 25, 2026: Pakistan has rejected a $490 million commercial financing offer from the International Islamic Trade Finance Corporation (ITFC), a subsidiary of the Islamic Development Bank Group, after the proposed borrowing cost reached nearly 8%, significantly higher than the government’s expected rate of around 6%.
According to Finance Ministry officials, the decision was taken last week by the ministry’s Debt Management Office, which considered the proposed interest rate too expensive for a one-year financing facility.
Following the rejection, the Finance Ministry directed the Economic Affairs Division to explore alternative borrowing arrangements, either through the ITFC or other lenders, at more competitive rates.
The decision comes as Pakistan continues to face substantial financing requirements, with the government seeking to manage borrowing costs while meeting its debt repayment obligations.
Pakistan faces Rs28.6 trillion financing requirement
According to the Finance Ministry’s annual borrowing plan for fiscal year 2026-27, Pakistan’s gross financing requirements are projected at Rs28.647 trillion, equivalent to approximately 20% of gross domestic product (GDP).
The estimated amount includes a federal budget deficit of nearly Rs7 trillion and more than Rs21 trillion in principal repayments on domestic and external debt.
The ministry has estimated net external financing requirements at Rs813 billion, or approximately $2.8 billion. However, the total amount of new borrowing will be higher because of repayments on existing loans.
The International Monetary Fund (IMF), in its latest assessment, has projected Pakistan’s current account deficit at approximately 1% of GDP, equivalent to around $4.5 billion.
This estimate is at least $1.5 billion higher than the Pakistani authorities’ recent projection of $2.5 billion to $3 billion.
According to the IMF, Pakistan’s gross financing requirements stood at approximately 22% of GDP during the previous fiscal year.
ITFC loan cost exceeded Pakistan’s bond yield
Official sources said the government declined the ITFC offer partly because its overall borrowing cost was higher than the approximately 6.1% market yield on Pakistan’s bond maturing in December 2027.
The difference reinforced the Finance Ministry’s concerns about accepting expensive short-term commercial financing.
Pakistan had previously secured a $300 million commercial loan in August through United Bank Limited from lenders in Bahrain and Dubai.
Under that arrangement, an exemption was granted from income tax on the bank’s profits associated with the financing.
Officials said foreign commercial lenders frequently require that Pakistani taxes should not apply to their earnings from such facilities.
As a result, the government must either bear the associated tax liability or provide an exemption, potentially increasing the overall cost of borrowing.
Pakistan also raised $3 billion through Eurobonds in September, according to the report.
The rejection of the ITFC offer highlights the government’s efforts to secure financing on more favourable terms as it navigates substantial fiscal requirements and external debt obligations.