China refinances $1 billion Pakistan loan

In a positive development, China on Friday rolled over a $1 billion loan to Pakistan shoring up the State Bank of Pakistan-held (SBP) foreign exchange reserves. 

The development came hours after Finance Minister Ishaq Dar informed the National Assembly’s Standing Committee on Finance and Revenue that China would be refinancing the $1 billion loan it had given to Pakistan earlier.

“$1 billion will come from China today or on Monday,” Dar had told the lawmakers. The minister also stated that talks are ongoing with the Bank of China for a loan of $300 million. He added that Pakistan will also receive dollars under China’s swap agreement.

A day earlier, the State Bank of Pakistan had shared that the country’s foreign exchange reserves — held by SBP and commercial banks — stood at $9.4 billion for the week ending on June 9.

With the $1 billion funds, it would mean that reserves have gone up to $10.4 billion.

According to the finance minister, the International Monetary Fund (MF) has set external financing as a pre-condition for Pakistan.

The news of the refinancing was reported by The News earlier this week. A report published in the paper stated that Pakistan has requested China to refinance commercial loans of $1.3 billion within the ongoing month but despite that, without the revival of the IMF programme, the foreign exchange reserves held by the State Bank of Pakistan might drop to below $3 billion.

Cash-strapped Pakistan is working to revive its stalled IMF programme expiring this month as it faces a severe liquidity crunch.

Pakistan is working to revive the stalled International Monetary Fund (MF) programme expiring this month as it faces a severe liquidity crunch.

However, Pakistan is seeing no signs of securing external financing any time soon amid political instability — which has had a huge impact on the deteriorating economy.

The $350 billion economy is in turmoil amid financial woes and the delay in an agreement with the IMF that would release much-needed funding crucial to avoid the risk of default.

The government has been in talks with the Washington-based lender since end-January to resume the $1.1 billion loan tranche that has been on hold since November, part of a $6.5 billion Extended Fund Facility (EFF) agreed upon in 2019.

The problem arises with the repayment of $900 million to multilateral creditors by the end of June 2023 in the shape of principal and mark-up repayments.