Hopes rekindle for $2b Chinese loans

Islamabad, Beijing reach deal for $700m commercial loan

ISLAMABAD:

Pakistan and China have reached a deal for a $700 million commercial loan, reviving prospects for a total of $2 billion injection from the friendly country -- a move that might temporarily stabilise the extremely thin foreign currency reserves until the International Monetary Fund (IMF) money started pouring in.

The development came days before Pakistan was scheduled to return another $300 million Chinese commercial loan.

The agreement for the $700 million loan between Pakistan and the China Development Bank was reached at the weekend.

According to officials, the money is expected to be transferred this week.
“One loan will be rolled over in a day or two,” said Finance Secretary Hamed Yaqoob Sheikh on Tuesday.

He was responding to a question during a meeting of the National Assembly Standing Committee on Finance.

The secretary did not clarify the origin of the money and the amount of the loan but sources said the agreement was reached with the Chinese bank at the weekend.

The finance secretary further said  another rollover was expected within this week -- in a veiled reference to the loans being given by the Industrial and Commercial Bank of China (ICBC).

Pakistan had also paid back a total of $1.3 billion for two commercial loans to the ICBC over two months ago in the hope of receiving back the money immediately.
However, the ICBC did not refinance the two separate facilities -- $800 million and $500 million -- which contributed to a significant reduction in the country’s foreign exchange reserves.

This time, the Chinese commercial banks took a longer time in finalising the new agreements because of certain complexities involved in these transactions and the bilateral relations.

It is now expected that the ICBC would reimburse one loan this month and the second one in March.

Pakistan’s gross official foreign exchange reserves stood at $3.2 billion as of last week, which may plunge further in the absence of any new foreign loan.

Although Minister of State for Finance Dr Aisha Pasha hoped that the staff-level agreement with the IMF might be reached this week, it would still take another one and a half months before the global lender called a board meeting and approved the $1.1 billion tranche.

The finance secretary also said the staff-level agreement with the IMF would be finalised soon.

However, he added that the economic challenges would not come to an end immediately.

Ms Pang Chunxue, the chargé d’affaires at the Chinese embassy, called on Finance Minister Ishaq Dar, according to a handout issued by the finance ministry.

During the meeting that took place at the Finance Division, the two sides discussed further deepening ties in  financial sectors, it added.

The sources said the Chinese diplomat informed the finance minister about the decision to release the money this month.

“She shared good will gestures and assured the continuous support of the Chinese government to Pakistan,” the handout read.

It continued that she said the government of China stood with the people of Pakistan and was willing to provide every possible assistance.

The finance minister commended the support of the Chinese leadership to Pakistan in its challenging times and shared various economic measures taken by the government to bring the economy on progressive path, the handout added.
Ms Pang Chunxue appreciated the policy steps taken by the government for sustaining and boosting the fiscal and monetary stability.

Dr Aisha told the NA panel that the cost of debt servicing might increase to a whopping Rs5.3 trillion in this fiscal year -- a sum that was Rs100 billion more than what Pakistan conveyed to the IMF last week and Rs1.4 trillion higher than the budgeted estimates.

The amount of Rs5.3 trillion is equal to 55% of this fiscal year’s budget.
Separately, a delegation of Rothschild & Co -- one of the leading world financial advisory groups, also called on the finance minister.

The delegation comprised Eric Lalo, the partner of Rothschild and Thibaud Fourcade, its managing director.

The company officials encouraged the Pakistani authorities to follow the IMF path and not default on its obligations, saying the debt restructuring was always painful, according to people privy to these discussions.

The delegation also said Pakistan did not need to default or a hard restructure.
They advised the ministry to improve communication with the rest of the world.
The finance ministry said in a press statement that Dar greeted the delegation and shared the economic outlook of the country.

The minister said despite the challenging economic situation, the government was steering the country towards stability and growth.

He added that the present government was committed to complete the present IMF programme and fulfill all its international obligations.

The Rothschild & Co delegation supported the policy steps taken by the government for sustaining and boosting the fiscal and monetary stability.

It expressed confidence in Pakistan achieving sustainable economic development because of the pragmatic policies of the government, according to the press statement.

“The meeting discussed the economic challenges being faced by Pakistan and possible roadmap for economic recovery leading to sustainable growth and development,” the statement read.

The delegation was of the view that Pakistan should “vigorously” highlight the positives in its economy globally.