Foreign loan inflows drop significantly as Pakistan seeks financial stability

Pakistan has been navigating a challenging economic landscape as it strives to manage its external financing needs. In the first eight months of fiscal year 2024-25, the country received approximately $12 billion in foreign loans, falling short of the expected targets. Out of this amount, $5.95 billion was attributed to fresh loans and grants, which represented a notable decline of nearly 25 percent compared to the same timeframe in the previous fiscal year. This decrease is largely attributed to delays in receiving funds from the International Monetary Fund (IMF), which exacerbated the country's already strained financial situation. The Economic Affairs Division's report highlighted that a significant portion of the total foreign loans was made up of legacy rollovers from China, Saudi Arabia, and the United Arab Emirates, demonstrating Pakistan's dependence on these nations for financial support. Specifically, Saudi Arabia contributed $3 billion, the UAE contributed $2 billion, and China provided $1 billion during this period. This reliance on rollovers emphasizes the precarious financial condition of Pakistan, as it struggles to maintain net international reserves and fulfill its financial obligations. To provide further context, Pakistan's foreign economic assistance (FEA) reached about $4.95 billion from July to February of FY25, contrasting with $6.678 billion during the same period in the previous fiscal year. This downturn indicates an uncomfortable trend of decreasing inflows, which heavily impact Pakistan's economy, making it challenging to meet its external financing gap. Notably, last year’s inflows included substantial contributions from international bodies like the IMF, which are not as readily available this time around. As the government attempts to stabilize the economy, projections for the current fiscal year suggest funds from international bonds and bilateral partners, which includes anticipated inflows of $1 billion from international bonds and $9 billion from China and Saudi Arabia. These funds are deemed critical for Pakistan to address its fiscal shortfalls, particularly in light of commitments made under the IMF program. The government aims to secure additional support to alleviate the pressures of external financing, but the reality remains that delays and reduced inflows present significant hurdles to achieving financial viability.