Pakistan Seeks Additional $1.4 Billion Loan from China to Address Financial Challenges
In an ongoing effort to alleviate its external financing pressures, Pakistan has requested a supplementary loan of 10 billion Chinese yuan (approximately USD 1.4 billion) from China. The announcement, reported by The Express Tribune, underscores Pakistan’s struggle with fiscal challenges and the reliance on international financing for economic stability.
This request was formally made by Pakistan’s Finance Minister, Muhammad Aurangzeb, during a recent meeting with China’s Vice Minister of Finance, Liao Min, on the sidelines of the annual International Monetary Fund (IMF) and World Bank meetings, NDTV.
Aurangzeb proposed raising the limit of the existing Currency Swap Agreement (CSA) to 40 billion yuan, noting that Pakistan has already exhausted the current 30 billion yuan (USD 4.3 billion) trade facility provided under the agreement.
If Beijing agrees to this additional 10 billion yuan, the expanded CSA would total approximately USD 5.7 billion, providing Pakistan with critical resources for managing its debt obligations and foreign exchange reserves.
The CSA, initially established in December 2011, was designed to facilitate bilateral trade, encourage foreign direct investment, and ensure liquidity support between the two nations.
In fiscal year 2021, the agreement’s initial limit of 20 billion yuan was extended to 30 billion yuan (USD 4.5 billion) for three years. Despite Pakistan’s recent requests to further increase this limit, China has typically been cautious, having declined similar appeals in the past.
However, China recently extended Pakistan’s current trade finance facility for an additional three years, solidifying their long-standing economic partnership. During Chinese Prime Minister Li Qiang’s recent visit, the debt repayment period was extended to 2027, demonstrating China’s ongoing commitment to supporting Pakistan’s financial stability.
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Pakistan’s Ministry of Finance acknowledged China’s support, affirming it as a testament to their “all-weather strategic cooperative partnership.”
The new request follows Pakistan’s acceptance of a costly USD 600 million commercial loan with an 11% interest rate, reportedly necessary to bridge immediate financing gaps. This decision, however, raised concerns with the IMF, which clarified that the loan was not a requirement of Pakistan’s USD 7 billion bailout package.
Pakistan’s total foreign exchange reserves, including the existing USD 4.3 billion trade facility and USD 4 billion in commercial loans, are approximately USD 11 billion, NDTV.
These resources, although critical, remain insufficient to fully cover the country’s debt obligations, highlighting the urgency behind Pakistan’s recent requests for expanded financing. The trade finance facility has enabled Pakistan to meet international debt payments and stabilize its foreign currency reserves, thus preventing potential market instability.
In their discussions, both finance ministers reiterated the strength of the Pakistan-China partnership and shared plans for future initiatives. The finance ministry noted Pakistan’s interest in learning from China’s economic reform journey and revealed that the country is preparing to issue its first-ever Panda bond in the Chinese market, aiming to diversify its financing sources.
Aurangzeb also assured China that comprehensive security measures would be taken to protect Chinese workers in Pakistan, especially those involved in key projects. Additionally, both countries emphasized the importance of integrating their payment systems and enhancing online payment settlements, which would deepen their economic collaboration.
As Pakistan navigates its ongoing financial challenges, China’s support remains a stabilizing force. The latest request underscores Pakistan’s determination to secure the resources needed for economic resilience while strengthening its partnership with China.