China has assured Pakistan of relending $3.7 billion in commercial loans, denominated in Chinese currency, before the end of June, including $2.4 billion that is maturing next month, in a move that will help keep the foreign exchange reserves in double-digits.
Unlike in the past, when Beijing has given loans in non-Chinese currency too, this time Pakistan's strategic ally has decided not to give loans in the United States currency as part of its drive to decouple the economy from the dollar; the government sources told The Express Tribune.
They said that China gave these assurances during recent meetings, aimed at securing the refinancing of loans maturing between March and June 2025. Pakistan has already returned a $1.3 billion loan of the Industrial and Commercial Bank of China (ICBC) in three tranches between March and April this year, officials said.
Subject to some clarifications that the commercial bank has sought from Pakistan, it is expected that the ICBC would relend the money in Chinese currency in the next few days, said the government sources. The ICBC had given the loan two years ago at floating interest rates, which translated to around 7.5%.
The central bank's reserves remained around $11.4 billion after a $1 billion injection by the IMF this month. After the next Chinese refinancing, it may increase to $12.7 billion before seeing another dip from the middle of next month, said the sources.
A $2.1 billion or 15 billion RMB syndicate financing loan by three Chinese commercial banks is maturing in June. Pakistan will pay at least three days ahead of the maturity to make sure that the money is given back before the close of the fiscal year. China would give this money in RMB currency, said the sources.
The China Development Bank had given 9 billion RMB, Bank of China 3 billion RMB and ICBC 3 billion RMB. The loan is being extended for a period of three years, said the government sources.
However, the interest rate issue was still undecided. Chinese authorities have given two options to Pakistan. It has proposed that Pakistan should either get the loan at a fixed interest rate or at a floating rate but that would not be based on Shanghai Interbank Offered Rate (Shibor), said the sources.
The timely refinancing of this loan was critical for Pakistan to keep the reserves in the double digits by the end of June. Under the International Monetary Fund (IMF) programme, Pakistan has committed to increase the reserves close to $14 billion in this fiscal year.
The Bank of China's $300 million loan will also mature next month, which Pakistan has to get refinanced to retain the reserves at their critical minimum levels. This loan too would be refinanced in Chinese currency, said the sources.
The move to delink loans from the US dollar is not Pakistan specific rather it is part of the overall Chinese policy to decouple its economy from the US currency. Pakistan remains dependent on Beijing for remaining afloat, the friendly nation that is constantly rolling over the $4 billion cash deposits, $5.4 billion worth commercial loans and $4.3 billion trade financing facility.
The recent IMF report stated that Pakistan's total foreign commercial loans as of December 2024 amounted to $6.2 billion, including $5.4 billion Chinese commercial loans.
The rupee-dollar parity has largely remained stable in this fiscal year, albeit some depreciation during the past few days. The rupee-dollar parity closed at Rs282.2 to a dollar on Tuesday.
When contacted, Ministry of Finance spokesman Qumar Abbasi did not give an official version for the story. He had been requested to confirm whether China has agreed to refinance $1.3 billion ICBC loan paid in March-April and whether it will be refinanced in RMB currency. He also did not respond to a question whether China also agreed to refinance $2.1 billion equivalent CDB-led loan that Pakistan will pay in June.
The IMF report underlined that Pakistan has received firm commitments for $1 billion financing in the next one year. It added that key bilateral partners remain committed to rolling over existing short-term liabilities in the remaining programme period.
But the IMF said that access to external commercial financing is expected to remain limited during the programme period, with a small "Panda" bond issuance anticipated in the next fiscal year. The IMF sees a gradual return to the Eurobond and global Sukuk market from fiscal year 2027, reflecting a restoration of policy credibility.
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