Pakistan receives $1 billion Chinese loan
Pakistan's central bank announced on Friday that it has received a $1 billion loan from China, boosting the country's foreign exchange reserves to over $4 billion.
Additionally, the government anticipates refinancing
another commercial loan of $300 million from China in the near future.
Earlier in the day, Finance Minister Ishaq Dar revealed that
Pakistan would obtain a $1 billion Chinese commercial loan within 72 hours.
Islamabad had proactively repaid this loan after reaching a new agreement with
Beijing.
Pakistan made the early payment after China agreed to waive the
prepayment penalty typically imposed when a borrower chooses to repay ahead of
schedule. The $1 billion payment was made 18 days prior to the scheduled date.
Speaking at the National Assembly Standing Committee on Finance,
Dar confirmed that Pakistan and China had reached an understanding regarding
the repayment and refinancing of the maturing $1.3 billion commercial loans and
the $1 billion State Administration of Foreign Exchange (SAFE) deposit.
In reference to a report in The Express Tribune, Dar verified
that Pakistan had settled a $1 billion loan from the China Development Bank
(CDB) earlier in the week. He mentioned that had the story not been published,
the government would have kept the prepayment matter confidential.
According to the finance minister, the State Bank of Pakistan
(SBP) would receive the $1 billion either on Friday or the following Monday.
Shortly after Dar's statement, a diplomatic source revealed that
China had disbursed the $1 billion on Friday. The source also stated that the
$300 million debt would be treated in a similar manner. These are old loans
that China is refinancing due to Pakistan's inability to service its debt.
Dar explained that the loan was repaid before the June 29th
deadline as part of a debt management strategy to secure refinancing well
before the end of the fiscal year. He also noted that while early payment
usually incurs a penalty, China had waived these charges. Dar emphasized that
if the $1 billion had been paid on June 29th, it would not have been possible
to receive the funds back within one day.
The Express Tribune had previously reported that Pakistan had
made a $1 billion payment to the China Development Bank (CDB) on Monday.
Pakistan is also scheduled to repay a debt of $300 million to
the Bank of China on June 26th. Dar stated that similar treatment would be
applied to the Bank of China loan, with early repayment and China returning the
amount before June 30th.
The finance minister further mentioned that two loans from SAFE
China, totaling $1 billion, would also be rolled over before the end of June.
Following the payment of the Chinese debt, Pakistan's gross
official foreign exchange reserves had dipped below $3 billion. Although the
reserves are expected to increase further, there will still be some impact due
to $900 million debt repayments to multilateral creditors. One day earlier, Dar
had expressed that China understood Pakistan's complex economic conditions and
was willing to provide financial support.
During the current fiscal year, Pakistan was unable to secure
any fresh foreign commercial loans, as non-Chinese banks refrained from
extending or refinancing loans due to the deteriorating economic conditions.
The finance minister reiterated that Pakistan would honor its
sovereign obligations and continue making payments to all international
creditors.
"Pakistan's assets are solvent and worth more than $6
trillion, so people should not be worried about $100 billion external public
debt repayments," said the finance minister.
Dar expressed hope that the exchange rate between the rupee and the dollar would improve to around Rs244 and urged people to refrain from discussing default.