Exclusive: Pakistan Targets $4 Billion from Middle Eastern Banks to Bridge Financing Gap, Says Central Bank Chief
Exclusive: Pakistan Targets $4 Billion from Middle Eastern Banks to Bridge Financing Gap, Says Central Bank Chief
KARACHI – Pakistan intends to secure as much as $4 billion from commercial banks in the Middle East by the upcoming fiscal year, according to the chief of the central bank who spoke to Reuters on Tuesday, as the nation seeks to address its external financing shortfall.
In his first interview with any media outlet since assuming office in 2022, State Bank of Pakistan Governor Jameel Ahmad mentioned that Pakistan is also in the “advanced stages” of obtaining an additional $2 billion in external financing necessary for the International Monetary Fund to approve a $7 billion bailout package.
In July, Pakistan and the IMF came to an agreement regarding the loan program, contingent upon the approval from the IMF’s executive board and the timely confirmation of essential financing assurances from Pakistan’s development and bilateral partners. Ahmad expressed optimism that the country’s gross financing needs would be effectively addressed, both for the upcoming fiscal year and in the medium term. Historically, Pakistan has depended on long-standing allies such as China, Saudi Arabia, and the United Arab Emirates to extend debt rather than facing a repayment crisis. Ahmad anticipated that similar commitments would be secured for the next three years, allowing the government additional time to stabilize its finances.
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Ahmad mentioned that the central bank believed Pakistan’s gross financing requirements for the upcoming years would be less than the 5.5% of GDP estimated by the IMF in its most recent country report from May. “Pakistan’s external gross financing requirements have been decreasing over the last few years,” he noted. “Given that the IMF’s evaluation was founded on a higher current account deficit than what was actually observed in fiscal 2024 and is now expected for the next few years, we consider the gross financing needs to GDP ratio to be below the 5.5% threshold.”
RATES AND INFLATION
When questioned about the monetary policy, Ahmad stated that the recent decreases in interest rates in Pakistan have achieved their intended goals, as inflation continues to decline and the current account remains stable, despite these reductions. The annual consumer price index inflation in Pakistan was recorded at 11.1% in July, down from peaks exceeding 30% in 2023. “The Monetary Policy Committee will assess all of these developments,” Ahmad mentioned, noting that future rate decisions cannot be predetermined. The central bank of Pakistan has lowered rates in two consecutive meetings from a record high of 22% to 19.5%, and is scheduled to convene again to evaluate monetary policy on September 12.
There are worries in the markets that the government could exploit the lower interest rates to increase borrowing; however, the head of the central bank indicated that this is not what he anticipates. “We recognize that the government will persist with fiscal consolidation efforts, despite the decline in interest rates,” stated Ahmad.
OVERCOMING CHALLENGES
Ahmad, who took on the role of governor of Pakistan’s central bank for a five-year period beginning in August 2022, described his first year as ‘pretty challenging.’ In 2023, Pakistan encountered a severe balance of payments crisis, with central bank reserves sufficient to cover just one month of imports. After eight months of rigorous discussions regarding fiscal discipline, the IMF provided Pakistan with a financial lifeline in the form of a nine-month, $3 billion bailout program.
“Last year showed significant improvement,” stated Ahmad. “Currently, everything is well-managed from an external account oversight standpoint.” Ahmad mentioned that the central bank will now prioritize growth, digitalization, and enhancing financial inclusion. “These aspects are equally vital for creating job opportunities and addressing various socioeconomic challenges,” Ahmad pointed out, emphasizing that the bank’s primary responsibility was to maintain price stability and financial stability before turning its attention to growth.
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