China rolls over $2 billion loan to Pakistan

ISLAMABAD: China has rolled over a $2 billion loan to Pakistan, caretaker finance minister Shamshad Akhtar confirmed in Thursday.

The $2 billion loan was due in March and has been extended for one year, local media reported citing sources in the Pakistan finance ministry.

Beijing had communicated the decision to Islamabad. The rollover will support the State Bank of Pakistan (SBP) depleting foreign reserves which stand at $8 billion.

Pakistan’s cash-strapped economy is struggling to stabilise from a financial crisis and secured a $3 billion standby arrangement from the International Monetary Fund last summer.

The vulnerable external position means that securing financing from multilateral and bilateral partners will be one of the most urgent issues facing the next government, ratings agency Fitch said last week.

Pakistan has borrowed $2 billion from China on a 7.1% interest rate and the loan was maturing in the week of March. A total of $4 billion worth of funds in loans has been kept as a safe deposit, which has reduced the external payments burden.

Pakistan paid Rs26.6 billion in the last fiscal year to China, Saudi Arabia, and the United Arab Emirates (UAE) on the $9 billion deposits that these three nations placed with the State Bank of Pakistan.

Last month, caretaker Prime Minister Anwaar-ul-Haq Kakar wrote a letter to his Chinese counterpart Li Qiang seeking the rollover of a $2 billion loan.

In his letter, the interim prime minister has requested that Beijing roll over Pakistan’s $2 billion loan for a year. He also thanked the Chinese government for financial support.

Last year in May, Beijing came to Pakistan’s rescue to secure the critical pending loan from the International Monetary Fund (IMF). It committed to meet two debt repayments in June worth $2.3 billion by providing fresh funds after the payments were made.

Earlier last year, China had already rolled over some loans to Pakistan and Chinese Foreign Minister Qin Gang also reiterated Beijing’s financial support on a visit in May last year.