Pakistan has finalized a new financial agreement with IMF, securing a $7 billion bailout package under the Extended Fund Facility (EFF). The loan comes with a comparatively low-interest rate of around 5 percent, significantly below the rates Pakistan faces on commercial borrowing.
The repayment plan spans a 10-year period and includes a grace period. Pakistan is expected to make repayments in 12 equal installments every six months. This arrangement provides some relief to the country’s stretched financial system, especially given the high-interest rates on loans from commercial banks.
The breakdown of the interest shows that it is calculated using the Special Drawing Rights (SDR) rate, with an additional 1 percent added on top. A service charge of 0.5 percent is also applied to each withdrawal from the loan.
In contrast, commercial loans from institutions like the Bank of China, China Development Bank, and Industrial and Commercial Bank of China come with higher interest rates of around 7 to 8 percent, adding pressure on Pakistan’s already fragile economy.
The IMF’s Executive Board approved this extended loan in late September as part of its 2024 Article IV consultation. The total agreement involves SDR 5,320 million (approximately $7 billion), with an initial disbursement of SDR 760 million, equivalent to about $1 billion.
This new bailout provides Pakistan with an opportunity to manage its financial obligations more effectively, particularly compared to costlier commercial loans.
The lower interest rate and extended repayment timeline offer the country some breathing space in navigating its economic challenges.
