Govt gets financial relief as China rolls over $4.2b debt

China’s $2b SAFE loan was maturing today, $2.2b commercial loan on Friday

Shahbaz Rana March 23, 2022
China’s $2b SAFE loan was maturing today, $2.2b commercial loan on Friday. PHOTO: file


Finance Minister Shaukat Tarin on Tuesday said that China has agreed to rollover $4.2 billion debt that was maturing this week, providing a major financial relief to the government.

The $2 billion loan by China’s State Administration of Foreign Exchange (SAFE), has been rolled over, Tarin confirmed to The Express Tribune.

The SAFE deposit loan matured on Wednesday (today).

Tarin said that the visiting Chinese Foreign Minister also conveyed on Tuesday China’s willingness to rollover another $2.2 billion Chinese commercial loan.

The $2.2 billion or RMB 15 billion facility was maturing on Friday.

Pakistan had made repeated requests to Beijing to rollover the debt and the latest request was made last week to Chinese top leadership, according to the ministry officials.

The response of the Chinese embassy was awaited till the filing of the story. China has so far stood by its commitments and has been bailing out the country.

Beijing had given a commitment to the International Monetary Fund in 2019 to rollover it’s  debt until the Fund programme expires.

During the visit of Prime Minister Imran Khan Pakistan had sought $4 billion rollover of SAFE deposits loans that were maturing in the next few months.

Pakistan had requested a total  $21 billion lifeline that included a total $10.7 billion rollover of both commercial and safe deposits.

These included rollover of SAFE deposits of $4 billion and commercial loans of $6.7 billion upon maturity.

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Pakistan has only $15.8 billion foreign exchange reserves as of last week and its currency is fast depreciating. The rupee fell to the lowest ever level of Rs181.75 to a dollar in interbank 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.

China has not yet communicated its decision to Pakistan.

The Currency Swap Agreement is a Chinese trade finance facility that Pakistan has been using since 2011 to repay foreign debt and keep its gross foreign currency reserves at comfortable levels instead for trade-related purposes.

The benefit of this arrangement is that the additional Chinese loan will not reflect on the book of the federal government and will not be treated as part of Pakistan’s external public debt.

Pakistan had paid Rs26.1 billion interest on the outstanding balance at agreed rates.

Last month, the IMF said that Pakistan owes $18.4 billion or one-fifth of its external public debt to China, which is not only $4 billion higher than the officially reported figures but is also the highest lending by any single country or financial institution.

The IMF has made the $4 billion loan given by China to stabilise the foreign exchange reserves part of the external public debt as of June 2021. Out of this, $2 billion matured today but was extended further due to Pakistan’s thin financial position.

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The amount of $18.4 billion is equal to 20% of the external public debt reported by the IMF in its report. It is also the highest amount given by any country or an institution. The World Bank’s outstanding debt towards Pakistan was $18.4 billion by end of the last fiscal year.

The western countries and the international financial institutions have been closely watching Pakistan’s financial relations with China, particularly after the China-Pakistan Economic Corridor.

The money that now Pakistan needs to pay for foreign loans and the cost of imports is also shown at the higher end of $30.4 billion by the IMF in its latest report.

According to the IMF, Pakistan’s gross external financing requirements are estimated at $30 billion for the current fiscal year that will increase to $35 billion in the next fiscal year.

Pakistan largely bridges it’s external financing gap by taking foreign loans, as the share of foreign direct investment is estimated at only $2.6 billion for the current fiscal year.

The delay in closing a deal with the IMF under the 7th Review of $6 billion programme could increase the cost of borrowing for Pakistan besides pushing back budget support loans by the international lenders. The government also wants to float another international sovereign bond to raise more debt but domestic political instability and delayed IMF talks are becoming hurdles.


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