Pakistan seeks Chinese debt rollover

ISLAMABAD:

Finance Minister Muhammad Aurangzeb on Wednesday requested China to roll over the guaranteed debt and to also increase the current size of the $4.3 billion currency swap agreement aimed at cushioning the low foreign exchange reserves.

The requests were made to the Chinese Finance Minister Lan Fo'an, on the sidelines of the International Monetary Fund's (IMF) spring meetings, according to the Finance Ministry officials. The bilateral meeting remained "very positive and constructive", said the officials.

Aurangzeb also invited Chinese and Saudi Arabian finance ministers to visit Pakistan.

The high-level engagement focused on strengthening bilateral economic cooperation and reaffirming partner support for Pakistan's reform agenda under the IMF's Extended Fund Facility (EFF) programme, according to a press statement issued by the Finance Ministry after the meeting.

It added in his meeting with Lan Fo'an, Finance Minister of China, Senator Muhammad Aurangzeb recalled their last meeting held in Beijing in July 2024 and thanked the Government of China for its unwavering support for Pakistan's socio-economic development and for its strong backing of Pakistan's economic reform program supported by EFF of the IMF.

China has assured the IMF to rollover Pakistan's $4 billion cash-deposit.

The officials said that among the issues that Pakistan took with China were rescheduling of the Chinese Exim Bank debt maturing during the tenure of the IMF programme and increasing the size of bilateral currency swap agreement.

The Finance Minister had also made these requests last year but so far the formal approvals have not been given by China.

The government is seeking the rescheduling of the Export-Import (Exim) Bank of China's debt that is maturing till September 2027.

The officials said that the issue of raising the limits under the Currency Swap Agreement was also taken up with the Chinese authorities. They did not disclose the additional amount that Pakistan sought in loan under the swap deal. Pakistan has already used the existing CNY 30 billion or $4.3 billion Chinese trade facility to repay its debts.

In October last year, the Finance Minister had requested China to raise this limit by an additional CNY 10 billion, translating to $1.4 billion at the current exchange rate. If Beijing accepts, the total facility will reach approximately $5.7 billion.

Pakistan's gross official foreign exchange reserves remain low at around $10.6 billion, which it wants to increase to over $14 billion in next two months on the back of new loans and higher remittances. The rescheduling of the Exim Bank debt will also help bridging the external financing gap identified during the IMF programme period.

Pakistan's external financing gap projected in September last year should significantly reduce as the World Bank has projected a $800 million current account surplus for this fiscal year compared to earlier estimates of about $3.7 billion deficit.

The Minister also provided an update on the status of the Panda Bond and requested the support of the People's Bank of China (PBOC) to fast-track the issuance process, according to the Finance Ministry.

Aurangzeb also briefed the Chinese side on the key reforms being undertaken in the areas of taxation, energy, privatization, public finance, and state-owned enterprises (SOEs), said the Finance Ministry.

The Finance Ministry also released its monthly economic outlook, predicting gradual recovery in the large-scale manufacturing amid decline in the output during the past over two years.

The report noted that the outlook for large scale manufacturing may improve gradually in coming months, with recovery expected to be gradual amid continued yearly contraction and recent monthly decline.

It said that improvements in high-frequency indicators - such as rising automobile output, raw material imports, and a more accommodative monetary stance - indicates cautious optimism.

Improved weather conditions and increased water availability are likely to support higher crop yields and better farming conditions contributing to overall economic growth.

The Finance Ministry said that inflation is projected to remain between 1.5 – 2% in April, with a possible rise to 3 to 4% by May 2025.

The World Bank and the International Monetary Fund this week cut Pakistan's inflation projections to 5.1-5.5%.

The Finance Ministry said that exports and remittances are expected to maintain their upward trend in the coming months keeping the current account within manageable range. Remittances last month hit the record high level of $4.1 billion.

Muhammad Aurangzeb also held an important meeting with the Saudi Minister of Finance Mohammed Aljadaan, in Washington, D.C, according to the Finance Ministry. The Minister thanked Aljadaan for Saudi Arabia's longstanding and strong support to Pakistan in its pursuit of economic development, including through support for the IMF programme, it added.

Saudi Arabia has agreed to rollover $5 billion cash deposit for one more year.