ISLAMABAD:
China has shown willingness to reschedule $1.8 billion debt for a period of two years, which is about half of the amount that Pakistan had requested last year but is still critical for meeting requirements of the International Monetary Fund (IMF) programme.
Islamabad sought the rescheduling of the government’s concessional loans, preferential buyer credit, and the buyer’s credit from the Export-Import (Exim) Bank of China, according to government officials. China has not agreed to reschedule the buyer’s credit loans, they added.
There is now a possibility that China may reschedule $1.8 billion worth of government concessional loans and the preferential buyer credit by next month, they added. These loans have been taken for various projects and are over and above the commercial financing that Chinese banks have given to Pakistan.
The Ministry of Finance spokesman Qumar Abbasi did not respond to requests for comments despite repeated reminders during the past many days.
The development came amid thin foreign exchange reserves temporarily slipping below $10 billion after Islamabad made bullet commercial debt repayments to Beijing last week. However, the figure is expected to jump to close to $14 billion in the next one week, once China refinances these facilities.
Finance Minister Muhammad Aurangzeb has already announced that the foreign exchange reserves would close over $14 billion by the end of this fiscal year. The fiscal year 2024-25 would close on the coming Monday.
Pakistan had initially requested China to reschedule $3.4 billion Exim Bank debt for two years to bridge a foreign funding gap identified by the IMF. Deputy Prime Minister Ishaq Dar also took up the issue during his visit to Beijing in February this year.
The government had requested the Exim Bank of China to consider rearrangement of its loans falling due from October 2024 till September 2027. China was not willing to negotiate the further rescheduling of the COVID-19 period loans, which consumed significant time, according to government officials.
Under the $7 billion deal, the IMF had identified a $5 billion external financing gap for the three-year programme period.
The Exim Bank has extended direct lending to the federal government and guaranteed lending to State-Owned Enterprises, said the sources. Pakistan has sought a two-year extension in repayment of the official and guaranteed debt obtained from Exim Bank. The country would keep making interest payments.
During recently held negotiations, the Exim Bank had proposed that in order to expedite the rescheduling process, Pakistan should exclude the buyer’s credit from the request, said the sources. The Chinese authorities were of the view that rescheduling of the buyer’s credit was not possible.
After excluding the buyer’s credit, the remaining amount is $1.8 billion for the period spanning from July 2025 to June 2027. The IMF programme will end in September 2027 but it will review the government’s targets till the June 2027 period.
China had also proposed that Pakistan should get rescheduling of the loans maturing from September 2025 to September 2027, to which the Ministry of Finance did not agree. China has also placed a condition that its loans should be converted from the US currency to the Chinese currency.
It will be the second time that the Chinese Exim Bank would reschedule Pakistani debt during the past two years. Earlier, in July 2023, the then Finance Minister and now Deputy Prime Minister Ishaq Dar had announced the $2.43 billion worth of 31 loans rescheduled by China for two years.
Pakistan is heavily dependent on Beijing for remaining afloat and meeting the IMF-determined foreign reserves requirements.
Pakistan’s foreign exchange reserves have temporarily slipped to below $10 billion after the country repaid the $2.1 billion Chinese facility last week in the hope of receiving the money back before the end of the month. In total, Pakistan has returned $3.7 billion of Chinese commercial loans in the past three months, which the Chinese are expected to refinance before the end of this month.
The ADB-backed $1 billion foreign non-Chinese commercial loan is expected to be disbursed by June 26th, according to central bank officials, in addition to another $415 million facility. This would return the reserves level back to double digits.
Pakistan has assured the IMF that its gross foreign exchange reserves would close at $13.9 billion by the end of this fiscal year. This is only possible if China refinances three separate loan facilities valued at $3.7 billion.
About $20 billion of public external debt matures in the next fiscal year, including nearly $13 billion in bilateral deposits. The bilateral partners will roll over, as per their promises to the IMF.
