Pakistan is facing mounting challenges in securing foreign loans, as disbursements dropped significantly during the first five months of the current fiscal year. Official data reveals that loan inflows have fallen short of expectations, with multilateral, bilateral, and commercial creditors holding back funding due to unmet conditions and the country’s high default risk. Despite an ambitious borrowing target of $24 billion, delays in project funding, unfavorable terms, and reduced external support have left the nation grappling with debt repayment pressures and a precarious financial position.

Foreign loan disbursements to Pakistan fell by 43% in the first five months of the current fiscal year, amounting to $3.6 billion, according to official statistics. This decline reflects slower-than-anticipated releases of funds. By comparison, Pakistan had received $6.4 billion in loans during the same period last fiscal year, as reported by the Ministry of Economic Affairs and the State Bank of Pakistan. The data shows that bilateral and multilateral lenders disbursed less than $2.6 billion during the July-November period of 2024-25, excluding an installment from the International Monetary Fund (IMF). When the IMF tranche is included, the total disbursement reaches $3.6 billion—$2.8 billion less than the amount received during the same timeframe last year. In the previous fiscal year, Saudi Arabia had provided an additional $2 billion as a cash deposit, and the United Arab Emirates (UAE) had contributed $1 billion in new loans.

For the current fiscal year, the federal government and central bank have projected $24 billion in inflows, comprising new loans and rollovers of existing debt. This includes rollovers of $5 billion in Saudi cash deposits and $4 billion in Chinese cash deposits. Pakistan’s reliance on foreign loans and rollovers underscores its struggle to meet external debt obligations. The country faces $12.7 billion in maturing cash deposits this year, along with $3.8 billion in Chinese commercial loans, bringing total obligations to $16.5 billion. This figure exceeds Pakistan’s gross official foreign exchange reserves by $4.5 billion.

While the IMF program was expected to unlock additional financing, Pakistan’s low credit rating and delays in various projects have made it challenging to secure external funding. The disbursements during July-November FY25 amounted to only 15% of the annual target, partly because most rollovers are scheduled for the December-June period. Saudi Arabia recently extended the repayment of $3 billion in debt for another year, which will be reflected in the Ministry of Economic Affairs’ next report. Loan release data from the IMF and other creditors is reported separately by the ministry and the central bank.

Meanwhile, the World Bank, a key lender in the past, has announced it will not provide any new budget support loans to Pakistan this fiscal year. Saudi Arabia has yet to approve a $1.2 billion oil facility, and funding for various projects continues to progress at a sluggish pace. Out of the planned $24 billion in borrowing for the current fiscal year, the government has included $19.2 billion in its budget documents. However, the rollover of $3 billion by the UAE and IMF repayments has been excluded, as these funds are earmarked for balance of payments support.

Data from the Ministry of Economic Affairs reveals that multilateral creditors disbursed $1.4 billion from July to November, representing 32% of the annual target. This figure is 88% higher than the same period last fiscal year, largely due to a $500 million loan from the Asian Development Bank (ADB) for the Climate and Disaster Resilience Enhancement Programme. In total, the ADB disbursed $764 million during the first five months for various schemes, which is nearly 45% of its annual estimate of $1.7 billion and significantly higher than the previous year’s disbursements. The World Bank released $398 million against an annual estimate of $2 billion, reflecting a 16% drop from the prior year. It also cancelled a $500 million loan under the Programme for Affordable and Clean Energy (PACE-II) after Pakistan failed to meet the required conditions. Meanwhile, the Islamic Development Bank provided $210 million during the same period, including $119 million for an oil facility, against an annual target of $740 million.

Plans to raise $1 billion through sovereign bonds remain stalled, though the finance minister announced that Panda bonds will be issued by December. Additionally, the country received $735 million through investments in Naya Pakistan Certificates, surpassing the annual projection. Commercial loan disbursements, budgeted at $3.8 billion, amounted to just $200 million in five months, entirely due to a Chinese loan rollover in September. The loan from China carries an interest rate of 8.5%, as disclosed to the Senate Standing Committee on Finance. Bilateral creditors disbursed $202 million during the period, a 63% decline compared to the previous year. Of this, $97 million came from China, while France contributed $90 million.

Despite an improvement in Pakistan’s credit rating by two of the three major agencies, the country remains within the high-risk category for default. This classification makes it prohibitively expensive to secure commercial loans or issue debt equity, the latter of which is budgeted at $6 billion for the current year.

To reduce reliance on external financing, the government must take decisive steps to cut budgeted expenditures. Current expenditure rose by 21% in the first quarter of the fiscal year compared to the same period last year. It is critical that further increases in current expenditure are avoided to mitigate the need for additional external support.

The sharp decline in foreign loan disbursements highlights the financial hurdles Pakistan faces amid its reliance on external borrowing. With multilateral creditors tightening conditions and bilateral lenders scaling back, the government’s strategy of balancing the budget through loans and rollovers appears increasingly unsustainable. While recent credit rating upgrades offer a glimmer of hope, Pakistan must prioritize fiscal reforms and curtail rising expenditures to reduce dependence on external financing. Failure to address these systemic issues could exacerbate the nation’s economic vulnerability, jeopardizing its ability to meet both domestic and international financial obligations.