Amid Financial Struggles, Pakistan Seeks USD 1.4 Billion Loan from China

Amid Financial Struggles, Pakistan Seeks USD 1.4 Billion Loan from China

Asian News International International | October 27, 2024 | 10:15 PM IST | Pakistan News, World | Follow on Google News

Amid Financial Struggles, Pakistan Seeks USD 1.4 Billion Loan from China

Amid Financial Struggles, Pakistan Seeks USD 1.4 Billion Loan from China

In a bid to address its persistent external financing issues, Pakistan has formally requested a supplementary loan of 10 billion yuan (CNY) (approximately USD 1.4 billion) from China.

The announcement was made on Saturday, underscoring the fiscal pressures the nation continues to face, the Express Tribune reported.

During a meeting with China’s Vice Minister of Finance, Liao Min, Pakistan’s Finance Minister Muhammad Aurangzeb urged the Chinese side to elevate the limits under the Currency Swap Agreement to CNY 40 billion. As stated by the Ministry of Finance, Pakistan has already fully utilised the existing CNY 30 billion (USD 4.3 billion) Chinese trade facility for debt repayment and is now seeking to raise this limit by an additional CNY 10 billion, which translates to USD 1.4 billion based on current exchange rates.

The finance minister’s appeal occurred on the sidelines of the annual meetings of the International Monetary Fund (IMF) and the World Bank. If approved by Beijing, the total facility would amount to approximately USD 5.7 billion.

This request is not unprecedented; Pakistan has previously sought increases in its debt limit, but Beijing has declined these appeals in the past. Notably, this request follows closely behind China’s extension of the current USD 4.3 billion (CNY 30 billion) facility for an additional three years. This extension was formalised during the recent visit of Chinese Prime Minister Li Qiang, which also saw the debt repayment period for Pakistan extended to 2027.

Pakistan has fully consumed the existing trade finance facility of USD 4.3 billion under the China-Pakistan currency swap agreement. Although the Ministry of Finance did not specify the reasons behind the new request, reports suggest that uncertainties regarding some pipeline loans have prompted the need for additional financial support.

In a parallel move to fill the financing gap, Pakistan accepted terms for a costly USD 600 million commercial loan. However, this decision raised concerns, leading the IMF to clarify that the loan was not tied to the requirements of Pakistan’s USD 7 billion bailout package. Aurangzeb later informed the National Assembly Standing Committee on Finance that the government secured USD 600 million in financing at an 11 per cent interest rate for IMF program purposes.

The finance ministry confirmed that both ministers reiterated the strength of the all-weather strategic cooperative partnership between Pakistan and China. Originally signed in December 2011, the bilateral currency swap agreement (CSA) aimed to promote bilateral trade, foreign direct investment, and provide short-term liquidity support.

In the fiscal year 2021, the initial limit of the CSA was extended from 20 billion CNY to 30 billion CNY (USD 4.5 billion) for a period of three years, with maturity periods ranging from three months to one year, according to the central bank.

This is not the first instance of Pakistan seeking an increase in its loan limit from China; in November 2022, then-Finance Minister Ishaq Dar also requested an additional 10 billion yuan (USD 1.5 billion) due to delays in loans from other bilateral and multilateral creditors.

Pakistan has primarily utilised the Chinese trade finance facility to repay foreign debts and stabilise its foreign currency reserves, preventing potential market turmoil. The current USD 4.3 billion facility is part of the State Bank of Pakistan’s foreign exchange reserves, which are approximately USD 11 billion. Additionally, China has extended USD 4 billion in SAFE deposits, which are included in these reserves, along with another USD 4 billion in commercial loans. Despite these supports, Pakistan’s foreign exchange reserves remain insufficient to meet its debt obligations to China.

The finance ministry stated that Aurangzeb expressed gratitude to the Chinese government for its unwavering support in Pakistan’s socio-economic development and assistance in securing the IMF’s Extended Fund Facility (EFF).

Furthermore, the finance minister highlighted Pakistan’s eagerness to learn from China’s experience in economic reform and mentioned plans to issue an inaugural Panda bond in the Chinese market to diversify its financing options.

Aurangzeb also assured China of comprehensive security measures for Chinese workers in Pakistan. Both parties emphasised the importance of enhancing online payment settlements and integrating the two nations’ payment systems, marking a collaborative step forward in their economic partnership.

(Except for the headline, this story has not been edited by VoM News staff and is published from a syndicated feed.)

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