To address its persistent external financing issues, Pakistan has formally requested a supplementary line of credit of 10 billion yuan (CNY) (about USD 1.4 billion) from China.
The announcement, made on Saturday, underlines the ongoing fiscal pressure on the country, reports Express Tribune.
During a meeting with China’s Deputy Finance Minister Liao Min, Pakistan Finance Minister Muhammad Aurangzeb urged the Chinese side to increase the limit under the currency swap agreement to CNY 40 billion. As the Finance Ministry said, Pakistan has already fully utilized the existing CNY 30 billion (USD 4.3 billion) Chinese trade facility to repay the debt and is now seeking to increase this limit by an additional CNY 10 billion. Which is equivalent to USD 1.4 billion. Based on current exchange rates.
The Finance Minister’s appeal came on the sidelines of the annual meetings of the International Monetary Fund (IMF) and the World Bank. If approved by Beijing, the total facility would amount to approximately US$5.7 billion.
This request is not unprecedented; Pakistan has previously sought an increase in its debt limit, but Beijing has rejected these appeals in the past. Notably, the request is on the back of extending China’s existing USD 4.3 billion (CNY 30 billion) facility for an additional three years. The extension was formalized during the recent visit of Chinese Prime Minister Li Qiang, which also extended the loan repayment period for Pakistan to 2027.
Pakistan has fully utilized the existing trade finance facility of US$ 4.3 billion under the China-Pakistan Currency Swap Agreement. Although the Finance Ministry has not specified the reasons behind the new request, reports suggest that uncertainties regarding some pipeline loans have prompted the need for additional financial support.
In a parallel move to bridge the financial gap, Pakistan accepted the terms of a costly commercial loan of US$600 million. However, the decision raised concerns, leading the IMF to clarify that the loan was not linked to the requirements of Pakistan’s US$7 billion bailout package. Aurangzeb later informed the National Assembly Standing Committee on Finance that the government had secured financing of US$600 million at 11 percent interest rate for IMF program purposes.
The Finance Ministry confirmed that the two ministers reiterated the strength of the all-weather strategic cooperative partnership between Pakistan and China. Originally signed in December 2011, the bilateral currency swap agreement (CSA) was intended to promote bilateral trade, foreign direct investment and provide short-term liquidity support.
According to the central bank, in fiscal year 2021, the initial limit of CSA was increased from CNY 20 billion to CNY 30 billion (USD 4.5 billion) for a three-year period, with a maturity period ranging from three months to one year. ,
This is not the first instance of Pakistan asking China to increase its line of credit; In November 2022, then Finance Minister Ishaq Dar also requested an additional 10 billion yuan (US$1.5 billion) from other bilateral and multilateral creditors due to loan delays.
Pakistan has primarily used the Chinese trade finance facility to repay foreign debts and stabilize its foreign exchange reserves, preventing potential market turmoil. The existing US$4.3 billion facility is part of the State Bank of Pakistan’s foreign exchange reserves, which amount to about US$11 billion. Additionally, China has expanded US$4 billion in SAFE deposits, which are included in these reserves, as well as US$4 billion in commercial loans. Despite these supports, Pakistan’s foreign exchange reserves are insufficient to meet its debt obligations to China.
The Finance Ministry said Aurangzeb expressed gratitude to the Chinese government for its unwavering support in Pakistan’s socio-economic development and assistance in securing the IMF’s Extended Fund Facility (EFF).
Furthermore, the Finance Minister highlighted Pakistan’s keenness to learn from China’s experience in economic reform and mentioned plans to issue an inaugural Panda Bond in the Chinese market to diversify its financing options.
Aurangzeb also assured China of comprehensive security measures for Chinese workers in Pakistan. Both sides stressed the importance of enhancing online payment settlements and integrating the payment systems of the two countries, as a collaborative step in their economic partnership.
(Except for the headline, this story has not been edited by NDTV staff and is published from a syndicated feed.)