Pakistan said China had agreed to refinance $4.2 billion in debt that came due this week, offering major financial relief to the cash-strapped country.
The $2 billion loan from China’s State Administration of Foreign Exchange (SAFE) has been rolled over, the Express Tribune quoted Finance Minister Shaukat Tarin as saying.
The SAFE deposit loan matured on Wednesday.
Tarin said visiting Chinese Foreign Minister Wang Yi also on Tuesday expressed China’s willingness to renew another $2.2 billion Chinese trade loan. The $2.2 billion (15 billion yuan) facility matured on Friday.
Pakistan has repeatedly asked Beijing to refinance the debt and the latest request was made last week to China’s top leaders, according to ministry officials.
Beijing had pledged to the International Monetary Fund (IMF) in 2019 to roll over its debt until the Fund’s program expired.
During Prime Minister Imran Khan’s visit, Pakistan had requested the renewal of $4 billion in SAFE deposit loans that were coming due in the coming months.
Pakistan had requested a total bailout of $21 billion, comprising a total rollover of $10.7 billion of commercial and secured deposits.
These included the refinancing of SAFE deposits of $4 billion and commercial loans of $6.7 billion at maturity.
Pakistan had only $15.8 billion in foreign exchange reserves as of last week and its currency is depreciating rapidly. The rupee fell to an all-time low of Rs 181.75 to the dollar on Tuesday.
Pakistan had also requested to increase the size of the currency swap facility from $4.5 billion to $10 billion, an additional borrowing of $5.5 billion.
The currency swap agreement is a Chinese trade finance facility that Pakistan has been using since 2011 to service its external debt and maintain its gross foreign exchange reserves at comfortable levels rather than for trade-related purposes.
The advantage of this arrangement is that the additional Chinese loan will not be reflected on the books of the federal government and will not be treated as part of Pakistan’s external public debt.
Pakistan had paid Rs 26.1 billion in interest on the outstanding balance at agreed rates.
Last month, the IMF said Pakistan owed $18.4 billion, or one-fifth of its external public debt, to China, which is not only $4 billion higher than official figures, but also the loan the highest of any country or financial institution. .
The IMF has made the loan of $4 billion granted by China to stabilize foreign exchange reserves part of the external public debt from June 2021. Of this amount, $2 billion has come due but has been extended. due to Pakistan’s delicate financial situation.
The amount of $18.4 billion is equivalent to 20% of the external public debt declared by the IMF. It is also the highest amount granted by a country or an institution.
The World Bank’s outstanding debt to Pakistan stood at $18.4 billion at the end of the last fiscal year.
Western countries and international financial institutions are closely monitoring Pakistan’s financial relations with China, especially after the China-Pakistan Economic Corridor.
The money Pakistan now needs to pay foreign loans and the cost of imports is also listed at the high end of $30.4 billion by the IMF in its latest report.
According to the IMF, Pakistan’s gross external financing needs are estimated at $30 billion for the current fiscal year and will rise to $35 billion in the next fiscal year.
Pakistan is largely filling its external financing gap through foreign borrowing, with the share of foreign direct investment estimated at just $2.6 billion in the current fiscal year.
The delay in reaching an agreement with the IMF under the 7th review of the $6 billion program could increase the cost of borrowing for Pakistan in addition to delaying budget support loans from international lenders, reported The Express Tribune.
(Only the title and image of this report may have been edited by Business Standard staff; the rest of the content is auto-generated from a syndicated feed.)