As Pakistan was on the verge of going bankrupt under massive international debt, China has come to its rescue, with more debt. As Pakistan has not been able to secure the latest instalment of a bailout package from the IMF due to differences, the Industrial and Commercial Bank of China approved an extension of a $1.3 billion loan for the country. This, according to Pakistan Finance Minister Ishaq Dar, would assist the country to maintain its declining foreign exchange reserves.
According to the reports, the facility will be made available to Pakistan in three timely instalments, the first of which amounting to $500 million has already been received by the Central Bank of Pakistan. Pakistan had already repaid the loan taken from ICBC in recent months, and now the Chinese bank is returning the money to Pakistan, rolling over the loan for a further period.
The news was confirmed by the Pakistan Finance Minister who tweeted, “Formalities completed and Chinese Bank, ICBC approved rollover of US $1.3 billion facility which has been repaid by Pakistan to ICBC in recent months. Facility will be disbursed in 3 instalments, first one of US $500 million has been received by SBP. It will increase forex reserves!”
Formalities completed & Chinese Bank, ICBC approved rollover of US$1.3 billion facility which has been repaid by Pakistan to ICBC in recent months. Facility will be disbursed in 3 instalments, first one of US$500 million has been received by SBP. It will increase forex reserves!
— Ishaq Dar (@MIshaqDar50) March 3, 2023
China has previously loaned Pakistan $700 million to assist strengthen its foreign exchange reserves. This means, according to Dar, Pakistan is effectively borrowing back the $2 billion it has paid to China in debt repayments for previously approved loans. Essentially, those closed loans have been reopened with China returning the repayments, extending the loan tenure.
The money is essential for the South Asian economy, which is experiencing a balance of payments crisis as its central bank’s foreign exchange reserves have shrunk to levels that can only barely cover three weeks of imports. The minister said that in order to bridge its funding shortfall this fiscal year, which ends in June, Pakistan will require $5 billion of external funding.
Reports mention that Pakistan will get escalated external funding only once Islamabad enters into an agreement with the International Monetary Fund (IMF), which the minister claimed should be completed by next week.
Since early last month, the lender has been in talks with Pakistan to resolve its ninth review. If the agreement is accepted by its board, it would release a $1 billion instalment of the $6.5 billion bailout that was agreed upon in 2019.
Pakistan’s economy continues to struggle as it continues to borrow money to pay off the debts it had taken earlier. Due to this vicious cycle of debt and partial payments, the economy has been spiralling out of control, and a financial catastrophe has been brewing for some time.
It was reported earlier that Pakistan only has around $4.1 billion in foreign exchange after it repaid $328 million guaranteed debt to China which the country had taken to set up power plants.
The easing of Pakistan’s crippling debt is Islamabad’s top priority, given the plight of the economy there and the political unrest in the highly radicalised Islamic Republic. Islamabad has now contacted Washington to persuade the Bretton Woods organisation to be lenient on the Islamic Republic as it requires PM Sharif to increase energy bills and impose more taxes to raise money. This is because Islamabad has to accept very strict IMF conditions for further loans to Pakistan. Such drastic measures would be politically damaging for the current Pakistani leadership and give Imran Khan a chance to return during the next election.
While Pakistan has requested a bailout package from the IMF, the IMF has not taken a decision on the matter yet. It is being said that if the country fails to secure assistance from IMF, it will default on loan payments.
“We will, God willing, take this country out of this quagmire,” Dar stated dismissing concerns of a default risk.
