China lends $700m to Pakistan in testing times

Foreign exchange reserves improve close to $4b

KARACHI:

China, the second largest global economy, on Friday eventually came forward to aid Pakistan in testing times, as it lent $700 million to Islamabad, supporting its foreign exchange reserves which improved apparently to a six-week high close to $4 billion.

Beijing has disbursed the loan, while the International Monetary Fund (IMF) is still on its way to resume $6.5 billion loan programme.

"Funds [worth] $700 million received today by [the] State Bank of Pakistan from [the] China Development Bank," Finance Minister Ishaq Dar said on his Twitter handle.

The China Development Bank's board of directors completed formalities, approving the facility of $700 million for Pakistan earlier this week, the minister said on Wednesday. "This amount … will shore up its (Pakistan) forex reserves.”

In anticipation of receipt of the loan from the second largest global economy of China, the domestic currency recovered to one-month high beyond Rs260 against the dollar in the interbank market on Friday.

The currency freshly recovered 0.36%, or 94 paisas, to Rs259.99 against the greenback, according to the SBP.

To recall, Pakistan was managing a high risk of default on foreign debt repayments and its economy melted down in the wake of fast depletion in the country's foreign exchange reserves to a nine-year low at $2.92 billion in the week that ended on Feb 3, 2023.

Earlier, the reserves stood at $20 billion some 18 months ago in August 2021. The larger import payments and foreign debt repayments dried the reserves to below $3 billion amid suspension of the IMF loan programme of $6.5 billion.

To recall, Pakistan had returned two loans totalling at $1.2 billion to China (ie $700 million and $500 million) in December 2022 and expected Beijing would quickly reissue the same financing back to Islamabad.

The expectation, however, did not come true amid delay in resumption of the IMF loan progrmme in December 2022.

China, however, finally decided to come forward to rescue Pakistan on Friday, while the IMF programme resumption is also around the corner, development suggests.

According to SBP's latest weekly update on Thursday, the country's foreign exchange reserves improved by $66 million in a week to a four-week high at $3.26 billion on Feb 17.

The reserves continued to improve for the second consecutive week. Cumulatively, they improved by $369 million in the past two weeks to $3.26 billion from a nine-year low at $2.92 billion on Feb 3.

Pakistan was estimated to repay around $8 billion in foreign debt in the second half (Jan-Jun) of the current fiscal year 2023, while a notable portion of the loan was expected to get a rollover.

High-ups, including Dar and SBP Governor Jameel Ahmed, said time and again Pakistan would continue to repay its foreign debt on time, as they had arranged financing required in the current fiscal year 2023.

The low forex reserves had, however, agreed economic mangers to curb non-essential and luxury imports through administrative controls. The low imports, mostly of raw materials, resulted in the closing of factories partially or completely and rendered millions of people jobless in the country.