Pakistan has signed the term sheet with 18 business banks for RS1,275 trillion ($ 4.50 billion) Islamic financing facility to help defend a debt mounting in his electricity sector, Energy Minister Sardar Awais Ahmad Khan Leghari said Friday.
Government, which owns or controls much of the power infrastructure, is struggling with ballooning of “circular debt”, unpaid bills and subsidies that have strangled the sector and weighed on the economy
The liquidity crisis has disturbed supply, discouraged investments and added to tax pressure, making it an important focus under Pakistan’s $ 7 billion IMF program.
Finding funds to connect the gap has been a persistent challenge, with limited fiscal space and high cost debt that make it more difficult to decide the decisions.
“At that eighteen business banks will provide these loans through Islamic funding,” Minister of Power Awais Leghari told Reuters. “It will be repaid in 24 quarterly rates over six years.”
The facility structured under Islamic principles is secured at a concession rate of 3-month kibor, benchmark rate, which banks use to price loan minus 0.9%, a formula agreed by the IMF.
Leghari said it will not add public debt. Existing obligations carry higher costs, including additional fees on independent power producers of up to Kibor plus 4.5%and older loans, spanning a little over the benchmark rates.
Meezan Bank, HBL, National Bank of Pakistan and UBL were among the banks that participated in the agreement, he said.
The government expects to sell RS323 billion annually to repay the loan limited to RS1.938 trillion over six years.
The agreement is also in line with Pakistan’s goal of removing interest -based banking in 2028, where Islamic Finance now consists of about a quarter of the total bank assets.
