Pakistan will receive interest-free loans from Denmark

Pakistan and Denmark signed a framework agreement for interest-free financing in the renewable energy, energy efficiency, water supply, and wastewater treatment sectors on Wednesday in Islamabad.

The agreement, signed by Secretary of the Ministry of Economic Affairs Muhammad Humair Karim and Danish Ambassador Lis Rosenholm, aims to strengthen financial cooperation in the energy and water sectors, according to a statement published in this respect.

On August 4, the federal cabinet approved the signing of the framework agreement with Denmark.

This framework is anticipated to serve as an umbrella agreement for possible development sector projects in the renewable energy, energy efficiency, water supply, and wastewater treatment sectors.

Each project will have its finance arrangement, which will be prepared individually with the Danish side in cooperation with all interested parties.

Currently, Faisalabad and Lahore wastewater treatment projects are in the pipeline and will be negotiated under the scope of this framework agreement.

In addition, this arrangement includes the Danida Sustainable Infrastructure Finance (DSIF) facility, which provides interest-free but unsecured loans of up to €100 million and facilitates the transfer of Danish technology to Pakistan.

After signing this agreement, interest-free loans would include a 35% concessional element covering the interest on the loan, export premium, bank margin, and an up-front award if these costs do not total 35% of the contract value.

Notably, this framework agreement marks a turning point in the bilateral and economic relations between Pakistan and Denmark, which have been partners in effective development cooperation since 1969; nevertheless, Denmark has not provided any active on-budget financial help since 2017.