ISLAMABAD: Pakistan has formally requested an additional loan of 10 billion yuan (approximately US$1.4 billion) from China to address persistent external financing problems.
The announcement was made on Saturday and highlighted that the country continues to face fiscal pressure, The Express Tribune reported.
Pakistan’s Finance Minister Mohammad Aurangzeb, in a meeting with Chinese Vice-Minister of Finance Liao Min, asked the Chinese side to raise the limit under the currency swap agreement to 40 billion yuan. As announced by the Ministry of Finance, Pakistan has already made full use of its existing 30 billion yuan (US$4.3 billion) Chinese trade quota for debt repayments, and is currently extending this cap by an additional 10 billion yuan (approximately 1.4 billion US dollars). ) trying to pull up. Calculated based on current exchange rates.
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The finance minister’s appeal was made on the sidelines of the annual meetings of the International Monetary Fund (IMF) and the World Bank. If approved by the Chinese government, the total investment for the facility will be approximately $5.7 billion.
This request is not unprecedented. Pakistan has sought to raise the debt ceiling, but Beijing has rejected such appeals in the past. Notably, this request closely follows China’s current US$4.3 billion (30 billion yuan) extension of the facility for another three years. The extension was formalized during Chinese Premier Li Qiang’s recent visit, and Pakistan’s debt repayment period will also be extended until 2027.
Pakistan has fully utilized its existing trade financing facility of $4.3 billion under the China-Pakistan Currency Swap Agreement. The Treasury Department did not give a reason for the new request, but there are reports that uncertainty around some pipeline loans is prompting the need for additional financial support.
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In a parallel move to fill the funding gap, Pakistan accepted terms for a hefty US$600 million commercial loan. However, the decision raised concerns, with the IMF clarifying that the loan was not tied to the requirements of Pakistan’s US$7 billion bailout package. Mr. Aurangzeb then informed the Parliamentary Standing Committee on Finance that the government had set aside $600 million in funds at an interest rate of 11% for the purpose of the IMF program.
The Ministry of Finance confirmed that the two ministers reaffirmed the strength of the all-weather strategic cooperative partnership between Pakistan and China. Originally signed in December 2011, the Bilateral Currency Swap Agreement (CSA) was intended to facilitate bilateral trade, foreign direct investment, and provide short-term liquidity support.
According to the central bank, in fiscal year 2021, the initial limit for CSA was extended from 20 billion yuan to 30 billion yuan ($4.5 billion) over three years, and the maturity period was increased from three months to one year. .
This is not the first time Pakistan has asked China to increase its loan limit. In November 2022, then Finance Minister Ishak Dar also requested an additional 10 billion yuan (US$1.5 billion), citing delays in financing from other bilateral and multilateral creditors.
Pakistan primarily relies on China’s trade finance system to repay its external debt and stabilize its foreign exchange reserves, preventing potential market disruptions. The current USD 4.3 billion facility is part of the State Bank of Pakistan’s foreign exchange reserves of approximately USD 11 billion. In addition, China provided $4 billion in SAFE deposits included in these reserves and an additional $4 billion in commercial loans. Despite this support, Pakistan’s foreign exchange reserves remain insufficient to meet its obligations to China.
The Ministry of Finance said Mr. Aurangzeb expressed his gratitude to the Chinese government for its unwavering support to Pakistan’s socio-economic development and assistance in securing the IMF’s Extended Fund Facility (EFF).
The Finance Minister also highlighted Pakistan’s keenness to learn from China’s experience in economic reforms and also mentioned plans to issue its first Panda bond in the Chinese market to diversify financing options.
President Aurangzeb also assured China of comprehensive security measures for Chinese workers in Pakistan. Both sides emphasized the importance of strengthening online payments and integrating the payment systems of the two countries, and demonstrated cooperative progress in economic partnership.
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Less Business News News World Pakistan asks China for additional $1.4 billion loan as financial woes persist
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