Pakistan announced on Saturday that it has requested an additional 10 billion yuan ($1.4 billion) loan from China, highlighting the ongoing external financing challenges Islamabad still faces.
Finance Minister Muhammad Aurangzeb met with China's Vice Minister of Finance, Liao Min, and "requested the Chinese side to raise the limits under the Currency Swap Agreement to CNY 40 billion," according to a late-night statement from the Ministry of Finance. Pakistan has already used the existing CNY 30 billion ($4.3 billion) Chinese trade facility to repay its debts and now seeks to raise this limit by an additional CNY 10 billion, translating to $1.4 billion at the current exchange rate.
The finance minister made the request on the sidelines of the annual meetings of the International Monetary Fund (IMF) and the World Bank.
If Beijing accepts, the total facility will reach approximately $5.7 billion.
However, this is not the first time Pakistan has made a similar request for an increased debt limit. Beijing has politely declined all such requests in the past. This latest request comes less than two weeks after China extended the current $4.3 billion (CNY 30 billion) facility for another three years. Pakistan and China had signed currency swap agreement during Chinese Prime Minister Li Qiang's recent visit, extending Pakistan's debt repayment period to 2027.
Pakistan has already fully consumed the existing $4.3 billion, or 30 billion yuan, trade finance facility under the China-Pakistan currency swap arrangement. The Ministry of Finance did not specify why it was seeking an additional $1.4 billion, particularly given that both the IMF and Pakistan previously claimed the required financing gap for the $7 billion programme had been met. Sources indicated that uncertainty regarding some pipeline loans made it necessary to seek additional loans.
To address the financing gap, Pakistan also accepted a term sheet for a $600 million commercial loan, one of its most expensive. However, after coverage in The Express Tribune, the IMF distanced itself from Pakistan's decision to secure this costly commercial loan, clarifying it was not tied to requirements for the $7 billion bailout package. Aurangzeb informed the National Assembly Standing Committee on Finance that the government had arranged $600 million in financing at an 11% interest rate for IMF programme purposes.
The finance ministry stated that both ministers reaffirmed the all-weather strategic cooperative partnership between Pakistan and China. A bilateral currency swap agreement (CSA) was originally signed in December 2011 between the State Bank of Pakistan (SBP) and the People's Bank of China to promote bilateral trade, foreign direct investment, and short-term liquidity support.
In the fiscal year 2021, the initial limit of 20 billion yuan was extended to 30 billion yuan ($4.5 billion) for three years, matched with Pakistani rupees and maturity periods of three months to one year, according to the central bank.
In November 2022, then-Finance Minister Ishaq Dar also requested an increase of 10 billion yuan ($1.5 billion) due to delays in loans from other bilateral and multilateral creditors.
Pakistan has largely used the Chinese trade finance facility to repay foreign debt and stabilise foreign currency reserves to avoid market panic. The current $4.3 billion facility is part of SBP's foreign exchange reserves, which stand at around $11 billion. China has also extended $4 billion in SAFE deposits, which are included in foreign currency reserves, and has provided $4 billion in commercial loans. Pakistan's foreign exchange reserves of $11 billion are still lower than its debt obligations to China.
The finance ministry stated that Aurangzeb expressed gratitude to the Chinese government for its unwavering support in Pakistan's socio-economic development and its assistance in securing the IMF's Extended Fund Facility (EFF).
The finance minister added that Pakistan is eager to learn from China's economic reform experience and informed the Chinese vice minister about Pakistan's plans to launch an inaugural Panda bond in the Chinese market to diversify its financing options. Aurangzeb also assured China of fool-proof security for Chinese workers in Pakistan. Both sides emphasised the importance of online payment settlements and integrating the two countries' payment systems.
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