China has extended the deadline for Pakistan’s $2 billion debt, according to sources from the Ministry of Finance, Geo News reported on Wednesday.
Loan Renewal
Pakistan had previously borrowed $2 billion from China at an interest rate of 7.1%, with the loan set to mature in the upcoming week of March. The renewal of this loan is a strategic move to bolster the depleting foreign reserves of the State Bank of Pakistan (SBP), which currently stands at $8 billion.
In the last fiscal year, Pakistan made payments amounting to Rs 26.6 billion (~$95 million) to China, Saudi Arabia, and the UAE, representing a portion of the $9 billion deposits these nations had placed with SBP.
This move to extend the loan repayment comes after caretaker PM Anwaar-ul-Haq Kakar wrote a letter to Chinese Premier Li Qiang, formally requesting the renewal of the $2 billion loan for a duration of one year. In the letter, Kakar expressed gratitude to the Chinese government for their continuous financial support, requesting that China extended the loan during a challenging economic situation for Pakistan.
The funds from the $4 billion kept in loans have been set aside as a safe deposit, alleviating some of Pakistan’s external payment burdens.
Past Financial Assistance
Notably, in May of the previous year, China had already stepped in to assist Pakistan when it faced challenges in securing a pending loan from the International Monetary Fund (IMF). At that time, the Chinese government rolled over more than $2 billion in debt, helping Pakistan avoid immediate default.
The refinancing included addressing commercial loans of $1.3 billion and a Chinese government loan of $1 billion. This strategic financial support from China played a crucial role in averting a potential default.
China Extends Deadline for $2 Billion Debt as Pakistan Struggles with Repayments
Pakistan had previously borrowed $2 billion from China at an interest rate of 7.1%, with the loan set to mature in the upcoming week of March.
February 29, 2024
IMAGE SOURCE: REUTERSA Pakistani national flag flies alongside a Chinese national flag above the portrait of former CCP Chairman Mao Zedong in Beijing's Tiananmen Square.