The federal budget estimates for 2026-27 have targeted for a big gross inflow of external assistance of USD 23.37 billion. The amount given in the Budget-in-Brief is in Rupees at 6,780 billion. The projected exchange rate is Rs 290 per USD. This yields the inflow estimate of USD 23.37 billion.
These inflows include the continuation of time deposits by Saudi Arabia and China, combined of USD 12 billion in 2026-27, with USD 3 billion more recently from Saudi Arabia. Therefore, excluding these time deposits, the total targeted inflow of external assistance in 2026-27 is USD 11.37 billion.
The worrying aspect of this projection is that it implies a significant jump in inflows in 2026-27. The revised estimate of the inflow in 2025-26 up to May 26, excluding the continuation of time deposits, is USD 9.07 billion. As such, the projected inflow in 2026-27 of USD 11.37 billion, implies that the target growth rate is anticipated at as high as almost25 percent.
There has also been an apparent decline in inflows in 2025-26. The total inflow, excluding time deposits, was USD 12.14 billion in 2024-25. This implies that the inflows of external assistance have declined by as much as 25.3 percent in 2025-26.
What explains this optimism about inflows in 2026-27? Is this attributable to the continued umbrella of the IMF program? However, the Program was proceeding smoothly even in 2025-26 and yet there was a shortfall in some types of assistance.
Is Pakistan anticipating renewed and increased support from the international community following its very useful role of mediation in the US-Iran negotiations for a sustainable ceasefire?
A perhaps more objective analysis would be to find out the changes in inflows from different sources in 2025-26, in relation to the level in 2024-25. Also, the Ministry of Economic Affairs had set targets for different inflows in 2025-26 and there is need to find the divergence in the actual inflows.
There are five major sources of external assistance excluding the time deposits continuation or new inflows. These are bilateral and multilateral gross inflows, net generation of funds by flotation of bonds, borrowings from the commercial banks and the inflow into the Naya Pakistan Certificate. During periods of an on-going IMF program there are also inflows from this source.
The bilateral inflows in 2025-26 are close to the target for the year. However, the absolute magnitude is small at USD 1.32 billion, with USD 1.00 billion from the Saudi Oil Facility. There was a time a decade earlier when there were substantial inflows from China as part of CPEC.
Multilateral funding is a relatively large source of, more or less, concessional financing. However, the year 2025-26 has witnessed a big decline in this inflow. The target for 2025-26 was close to USD 5 billion, since the actual inflow in 2024-25 was USD 4.8 billion. However, in the first eleven months of 2025-26 the inflow has been USD 3.1 billion, almost 38 percent below target.
The big fall is in the inflows from the Asian Development Bank and the World Bank, who have traditionally been major sources of concessional project finance. The assistance from the ADB is likely to be 53 percent below target, while the shortfall in the case of the World Bank is 10 percent below target. There is need to investigate the big shortfall of over USD 1 billion in assistance from the ADB.
The target of borrowing by flotation of bonds was USD 0.4 billion in 2025-26. One of the few indicators of success is that the actual amount raised is USD 1 billion. The process of flotation of PANDA bonds in China has successfully commenced.
Another big shortfall in 2025-26 is in the level of borrowing from international commercial banks. The target was set at USD 3.1 billion for 2025-26, after big level of borrowing from this source of USD 4.3 billion in 2024-25.
The surprise is that the lending by foreign commercial banks to Pakistan is only USD 0.2 billion up to May 26. What has led to this big failure? An IMF Programme is operational. Further, foreign exchange reserves have been higher throughout 2025-26, compared to the level of USD 14.5 billion in June 2025. They stand at USD 16.5 billion at the end of 2025-26.
The reluctance of international commercial banks to lend to Pakistan, when there has been an improvement in the credit-worthiness of the country needs to be analysed. Also, Pakistan needed this financing, given the shortfall particularly in multilateral financing.
The last significant source is the Naya Pakistan Certificate. It has emerged as a major mechanism for external financing. The inflow into this scheme has been USD 2.5 billion in 2015-16, compared to USD 1.9 billion in 2024-25, and with a surprisingly low target of USD 0.6 billion.
Overall, the inflow of new external assistance to Pakistan, excluding the continuation of time deposits, is estimated at close to USD 9 billion in 2025-26. The budgetary target was USD 10.9 billion. There is also a big shortfall in relation to the actual inflow in 2024-25 of as much as 32 percent.
Despite this failure, the Ministry of Finance targeted for USD 10.4 billion inflow of external assistance in 2026-27, excluding the continuation of time deposits. This will represent an increase of over 15 percent over the actual level in 2025-26.
The apparent reason for this enhanced target inflow is the big expected jump in foreign debt repayment obligations from USD 12 billion to USD 19.4 billion, in the event there is maturity of some time deposits, as happened with the deposit by the UAE. Fortunately, this was countered by a corresponding increase in deposit from Saudi Arabia.
Pakistan is at a point in its external payments and receipts where some degree of fragility could come back again in 2026-27. It is important that larger inflows from bilateral, multilateral and foreign commercial banking sources are achieved. Otherwise, there will be pressure on foreign exchange reserves, especially after the ending of the IMF Programme next year.
Copyright Business Recorder, 2026
The writer is Professor Emeritus at BNU and former Federal Minister
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