Federal government announces new foreign loan repayment policy
ISLAMABAD – The federal government announced a new policy for the repayment of foreign loans 2020 which stated that repayment to borrowers, including provincial governments, federal and provincial entities, departments, autonomous bodies and development financial institutions (DFI) would be made under the same financing terms and conditions borrowed by the federal government from the foreign lender.
The Ministry of Economic Affairs recently released the new policy. The Cabinet’s Economic Coordination Committee (ECC) approved the revision of the 2016 restitution policy, which was subsequently ratified by the federal cabinet.
The 2020 on-lending policy will replace the 2016 on-lending policy. The 2020 on-lending policy would come into effect on December 22, 2020 and will apply to all foreign loans / credits borrowed by the federal government and ceded to federal and provincial departments, agencies. autonomous and DFIs.
Borrowers will be required to bear the cost of currency risk on an actual basis and to repay the actual amount of principal and interest paid by the Government of Pakistan to the foreign lender in foreign currency and converted into rupee equivalent issued by the Bank of State of Pakistan.
A one-time fixed administrative charge (FAC) of 0.25 percent will apply on the loan amount disbursed to the borrower. The FAC will be paid by the borrower at the time of each disbursement received, within seven days to the State treasury.
All fees and charges including Escrow Fee, Management Fee, Entrance Fee, Service Fee, etc., as applicable, payable by the Government of Pakistan to foreign lenders will also be paid by the borrower.
When the loan amount is allocated to more than one borrower, fees and charges are levied on a pro rata basis.
Warranty fees, escrow fees, management fees, entry fees, service fees, etc. must be deposited in the Treasury on the due dates along with interest / principal payments.
In the event of the borrower’s default in payment of amounts due that remain unpaid for 30 days after the due date, penalty interest @ 2% per annum will be charged for the period of default.
The EAD will issue a sanction letter or sign a subsidiary loan agreement with the borrower, as the case may be, which will specify the terms and conditions of the loan transferred as well as the amortization schedule for repayment.
The repayment period will be the actual repayment period available in the loan agreement signed by EAD with the foreign lender. The exchange rate differential, if any, resulting from the difference between the date of payment by the GoP to the lender and the date of payment by the borrower to the GoP should be reconciled at the close of each fiscal year and the borrower is required to pay such a differential. In case of secured loans, a guarantee fee of 0.5% per annum will be charged to borrowers on the outstanding loan balance.