Pakistan has officially requested an additional $1.4 billion loan from China, demonstrating the country’s persistent struggle to secure external financing. This request, formally submitted on Saturday, underscores the heavy fiscal pressures the nation continues to face. The news was reported by The Express Tribune, further highlighting the critical economic situation in Pakistan.
During a meeting with Liao Min, China’s Vice Minister of Finance, Pakistan’s Finance Minister Muhammad Aurangzeb made a compelling appeal. He urged the Chinese side to increase the limit under the existing Currency Swap Agreement to CNY 40 billion. This would essentially boost the total trade facility from the current CNY 30 billion to CNY 40 billion. The request is based on the fact that Pakistan has already fully utilized the existing CNY 30 billion (USD 4.3 billion) Chinese trade facility. This facility has played a crucial role in debt repayment and stabilizing the country’s foreign currency reserves.
The finance minister’s appeal occurred during the annual meetings of the International Monetary Fund (IMF) and the World Bank, demonstrating the global platform Pakistan is seeking to leverage for its financial needs. If approved by Beijing, the total facility would amount to approximately USD 5.7 billion, potentially providing a significant buffer for Pakistan’s struggling economy.
This request, while significant, isn’t unprecedented. Pakistan has previously sought increases in its debt limit from China, only to face rejection. The current request, however, follows closely behind China’s recent decision to extend the existing USD 4.3 billion (CNY 30 billion) facility for an additional three years. This extension was announced during the visit of Chinese Prime Minister Li Qiang, which also saw the debt repayment period for Pakistan extended to 2027.
The Ministry of Finance has not explicitly stated the reasons behind this new request. However, reports suggest uncertainties regarding some pipeline loans may have triggered the need for additional financial support. This uncertainty underscores the vulnerability of Pakistan’s economy to potential delays or disruptions in external funding.
In a parallel move to bridge the financing gap, Pakistan accepted terms for a costly USD 600 million commercial loan. This decision, however, raised concerns about the potential impact on the country’s financial stability. The IMF, which has been providing a USD 7 billion bailout package to Pakistan, stepped in to clarify that the loan was not tied to the requirements of this package. Finance Minister Aurangzeb later reassured the National Assembly Standing Committee on Finance that the USD 600 million in financing was secured at an 11 per cent interest rate for IMF program purposes.
Throughout these discussions, both Pakistani and Chinese officials reiterated the strength of the strategic cooperative partnership between the two countries. This strategic alliance is evident in the various economic initiatives and financial support that China has extended to Pakistan. The Currency Swap Agreement, signed in December 2011, exemplifies this partnership, aiming to promote bilateral trade, foreign direct investment, and provide short-term liquidity support.
The agreement’s initial limit was extended from 20 billion CNY to 30 billion CNY (USD 4.5 billion) in fiscal year 2021. The maturity periods for these funds range from three months to one year, according to the central bank.
Pakistan’s dependence on Chinese financial assistance isn’t new. In November 2022, then-Finance Minister Ishaq Dar requested an additional 10 billion yuan (USD 1.5 billion) due to delays in loans from other bilateral and multilateral creditors. This reliance on China reflects the challenges Pakistan faces in securing financing from other sources, highlighting the country’s precarious economic position.
Pakistan has predominantly utilized the Chinese trade finance facility to repay foreign debts and stabilize its foreign currency reserves, preventing potential market turmoil. The current USD 4.3 billion facility forms part of the State Bank of Pakistan’s foreign exchange reserves, which currently stand at approximately USD 11 billion. These reserves also include USD 4 billion in SAFE deposits from China and another USD 4 billion in commercial loans. Despite these supports, Pakistan’s foreign exchange reserves remain insufficient to meet its debt obligations to China.
Finance Minister 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). He also highlighted Pakistan’s willingness 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 sides stressed the importance of enhancing online payment settlements and integrating the two nations’ payment systems, signifying a collaborative step forward in their economic partnership. These initiatives aim to further strengthen the economic ties between the two nations and facilitate smoother trade and investment flows.
