The Ministry of Economic Affairs, Economic Affair Division has released recently the Monthly Disbursement Report of Foreign Economic Assistance for January 2026, with a delay of one month. The format has also been changed.
The monthly statement up to December 2025 included three columns, related respectively to the budget estimates of total inflows and separately of grants and loans. These three columns enabled a comparison of the targets and actual inflows of different types of assistance.
The latest statement for January 2026 has excluded these three columns.
The Economic Affairs Division must restore these columns for the year in the monthly statement of inflows so that the performance in achieving the targets from different types of assistance can be assessed.
Based on the December report with the targets the performance overall in achieving the overall annual target for external assistance can be assessed as of January 2026. Excluding time deposits and their assumed rollovers, the total external financing target for 2025-26 is USD 10,922 million. The actual inflows in the first seven months have aggregated to USD 5,167 million. This is equivalent to 47.3 percent of the annual target. There is a significant shortfall of 11 percent, as the inflows by January should have been equivalent to 58.3 percent of the target annual inflow for the year. In absolute terms, the shortfall is USD 1,201 million.
The objective of this article is first to identify the various shortfalls and the reasons for these shortfalls. This is followed by an assessment of the likely impact on external financing in the remaining months of 2025-26 following the on-going war in the Middle East and the consequential impact on the lending to Pakistan and change in the financing requirements.
The target for bilateral inflows in 2025-26 is USD 1,362 billion. Fortunately, USD 1,200 million has already been received, especially of USD 708 million from the Saudi Oil Facility. The overall size of bilateral inflows has diminished in the last few years due to the ebbing of inflows from China. The bilateral commitment by China is only USD 37 million for the year. Fortunately, the actual inflow up to January is higher at USD 72 million.
Turning to multilateral inflows, the target for the year is USD 5,041 million, of which USD 2,126 million has been received, equivalent to 42 percent of the annual target. Therefore, there is a significant shortfall already. Asian Development Bank and the World Bank have disbursed only 32 percent of their commitment for the year.
There is another significant omission in the January statement of disbursement of foreign assistance. Apparently, there is no longer the expectation that a bond of USD 400 million will be floated this year. This is the first indicator of the worsening of the outlook for external financing this year, because Pakistan’s credit rating has probably not improved sufficiently for external private investors to participate in the flotation of the bond.
The biggest gap in external financing in 2025-26 up to now is in the inflow of loans from foreign commercial banks. The target for the year is large at USD 3,100 million. However, loans contracted up to the end of January 2026 are of only USD 144 million.
Despite the existence of an IMF programme, the expectation in 2025-26 is of a net inflow from the IMF of only USD 410 million, of which USD 209 million has already been received. Clearly, a stage has been reached when due to accumulation of debt with the IMF, the level of debt repayment has risen sharply. Also, the recent third review process of the programme has been delayed. Consequently, the next loan installment will probably materialize only towards the end of 2025-26.
The only good news is in the large inflow of USD 1,488 million into the Naya Pakistan Certificates. The target for the year was much less at USD 609 million. The certificates are of duration of 3 months to 5 years and carry attractive annualized rates on dollar-denominated investments of 5.5 percent to 6.25 percent. Certificates are available for both non-resident and resident Pakistanis.
One of the largest components of foreign assistance is the continuation and rollover of time deposits of USD 9,000 million in 2025-26, by Saudi Arabia of USD 5,000 million and USD 4,000 million by China. There is here also a surprise with no mention of the time deposit by the UAE, which has apparently been rolled over on only a monthly basis.
The overall projected inflow of 2025-26, including the time deposits is USD 19,922 million, out of which USD 14,167 million has been received, implying a financing gap of USD 5,755 million.
This brings us to the impact on the volume required of external debt inflows and the change in perceptions of Pakistan in terms of access to private external financing due to the on-going war in the Middle East.
The requirement of external financing is likely to rise significantly with the jump already in the price of oil to over USD 100 per barrel. Remittance inflows from the Middle East are also likely to be impacted with the downturn in these countries due to a contraction in oil exports. Further, due to rise in shipping and insurance costs, the c.i.f. prices of other imports, besides oil, are likely to also contribute to a rise in the overall import bill.
The target set earlier was to limit the current account of the balance of payments to a deficit of only USD 2 billion in 2025-26. Now with the multiple negative shocks arising from the Middle-East War, the deficit could increase up to USD 7 billion by the end of June 2026.
Therefore, the external financing needs in 2025-26 may be higher by close to USD 5 billion. Further, inflows in particular from private investors are likely to be even lower, given heightened risk perceptions of Pakistan. Overall, there is likely to be growing pressure on Pakistan’s foreign exchange reserves in coming months.
The other scenario is one of lack of access to oil imports by Pakistan if the closure of the Strait of Hormuz continues. This will not put as much pressure on the balance of payments but will lead to a quantum slowdown of economic activities in the country. Consequently, the economy will come to a standstill and experience a significant fall in the GDP, with consequences of even higher unemployment and poverty.
Copyright Business Recorder, 2026
The writer is Professor Emeritus at BNU and former Federal Minister