Pakistan has rejected a proposed $490 million commercial loan from the Islamic Development Bank Group, citing borrowing costs that exceeded the government's expectations.

According to government officials, the financing facility was offered by the International Islamic Trade Finance Corporation (ITFC), a member of the Islamic Development Bank Group.

The one-year loan carried an estimated all-in borrowing cost of approximately 8%. However, Pakistan's debt office had expected a rate closer to 6%, prompting concerns over the cost of the proposed financing.

Government Seeks More Competitive Financing

Following the decision, the Finance Ministry has asked the Economic Affairs Division to explore alternative loan options offering more competitive rates.

The move comes as Pakistan faces substantial financing requirements. The Finance Ministry estimates the country's gross financing needs at approximately 20% of its gross domestic product (GDP).

The decision to reject the facility highlights the government's focus on borrowing costs as it evaluates options to meet its financing needs.

Why the Loan Was Rejected

The main issue was the difference between the proposed borrowing cost and the rate Pakistan had expected.

With the offered facility carrying an estimated all-in cost of around 8%, compared with the government's target of approximately 6%, officials decided to seek potentially more affordable financing alternatives.

The government has tasked the Economic Affairs Division with identifying suitable options at competitive rates.