KARACHI: The Ministry of Finance has asked foreign banks for dollar-based loans, offering them an attractive interest rate of Libor (London Inter Bank Offered Rate) plus 5 per cent, banking sources said.

The country’s sharply declining foreign exchange reserves and dwindling local currency are the possible reasons behind the ministry’s move.

The desperation for dollars has reached its peak in both inter-bank and open markets as well as in the power corridors of Islamabad as the local currency tumbled to its record low in the inter-bank market on Monday, with the dollar being traded at Rs103.20

Banking sources confirmed that the ministry has sent a letter to foreign banks in this regard, adding that August 28 has been set as the deadline for a reply from the banks.

They said the PML-N government had offered a rate of Libor plus 5 per cent, which could be the highest rate in the region for foreign banks operating in the country.

According to the latest report, the Libor is 0.67 per cent for one year, which shows the rate offered by the government is around 6pc.

Bankers said this attraction could yield positive results and would help the government raise around half a billion dollars.

Bankers, who did not want to be named, said the offered rate was attractive and they could earn even if the principal offices provided them loans at 2.5pc to 3pc.

Since the Fed Reserve’s rate is less than 1pc, the banks in the United States offer less than 3 per cent interest on fixed 15-year mortgage loans.

The government is negotiating loans with the IMF and hopes $6.2bn would be finalised in the next month’s meeting.

The newly elected government has so far failed to muster support from the Islamic nations as was expected from Prime Minister Nawaz Sharif because of his good personal relations with some rich Muslim countries.

However, the government has been paying the debt and interest to the IMF for its loans under the Standby Agreement signed in 2009. The government has announced that there was no problem for the repayment to the Fund.

Currency experts said the impact of falling foreign exchange reserves was too high as the dollar was traded at Rs103.20 in the inter-bank market.

The rupee depreciated to its record low despite record remittances of $1.4bn in July from the overseas Pakistanis.