There is one rather negative silver lining to Pakistan’s having to pay six percent on the $600 million commercial loan it has obtained from the Standard Chartered Bank. If it had not obtained a ratings upgrade from Moody’s at the end of last month, it might have had to pay an even higher rate. $300 million will be used to buy Liquefied Natural Gas and $300 million will be used for syndicate financing. This Pakistan had to do after China, Saudi Arabia and the UAE had agreed to the roll over of $12 billion in cash deposits and loans. Pakistan is being made to jump through all of these hoops so that it could obtain the much-desired IMF Extended Structural Adjustment Facility of $7 billion. Only if it obtains this loan would the game be worth the candle. The commercial loan means that Pakistan is paying above SOFR, which is about 5.3 percent and far above SARON, which was 1.21 percent at the close on Thursday.
This Shylockian rate was rendered all the more necessary after the bilateral creditors, who had already pitched in as far as possible, left that hole of $600 million in the country’s finances, which the IMF insisted be filled before it agreed to hold the Board of Directors meeting, now summoned for the 28th of this month. Where the staff-level agreement already reached, will be given formal approval. It should be noted that this loan does not mean money for development. It will go on consumption (being literally burned away) and in repaying old loans. It should be noted that the painfully high interest rate means that Pakistan’s foreign debt servicing burden, which must be paid in foreign exchange, will increase accordingly. While the Pakistani taxpayer may well be squeezed to pay up, this loan does not include a component which might explain where the foreign exchange might come from.
The IMF may be very particular about where the money is coming from, but it seems to offer little or no guidance on how the country is supposed to raise the foreign exchange to repay its loans, except refinancing and rollovers. That seems to be the new IMF strategy of dealing with Pakistan: get it to roll over past loans, or else refinance them. The obtaining of the commercial loan at such a punitive rate of interest is merely another step in that direction.
