Sunday June 16, 2024

Forex reserves to get major boost as Pakistan ‘receives’ $700m from China

Chinese refinancing to work as a lifeline for the cash-strapped nation struggling to pay off its external debt

By Ashraf Malkham
February 24, 2023
An undated image of a currency dealer counting $100 notes. — AFP/File
An undated image of a currency dealer counting $100 notes. — AFP/File

Pakistan's dwindling foreign exchange reserves are to get a major boost as the State Bank of Pakistan (SBP) received $700 million approved by the China Development Bank on Friday.

Taking to his Twitter handle, Finance Minister Ishaq Dar confirmed that $700 million have been received today by the SBP from the Chinese bank.

The coalition government has been struggling to boost SBP-held foreign exchange reserves — which currently stand at $3.25 billion as of February 17. However, amid the delay in the revival of the $6.5 billion International Monetary Fund (IMF) programme, the government continued to face difficulty in increasing the reserves.

The $700 million deposited by China was the most sought-after amount as the nation was struggling to pay off its extraordinarily high levels of external debt and barely has enough dollars to cover less than three weeks’ worth of imports.

Earlier this week, Dar announced that the board of the China Development Bank approved a loan facility for Pakistan worth $700 million, and the formalities in this regard have been completed.

Taking to his Twitter handle, Dar announced that the money, which would bolster the country’s diminishing foreign exchange reserves, is expected to arrive at the SBP this week.

Well-placed sources on Wednesday informed The News that the two more commercial loans are also expected to be re-financed including $500 million and $800 million.

So in totality, Pakistan is eyeing the re-financing of Chinese loans up to $2 billion by the end of February or the first week of March 2023. 

Pakistan also hopes to reach a staff-level agreement with the IMF this week. However, the global lender would need another one and a half months before calling a board meeting and approving the $1.1 billion tranche.

Pakistan has taken painful fiscal consolidation measures to unlock funding from a $6.5 billion IMF bailout. Experts believe that even with the IMF programme resumed, it was unlikely that the nation’s economy would get back on track.

Continued programme performance and funding are subject to significant risks, especially in the run-up to this year’s elections. A debt readjustment is becoming a greater possibility sometime around 2023-2024.

Pakistan’s external debt servicing obligation for the ongoing fiscal year 2022-23 is $23 billion, of which $6 billion has been repaid and $4 billion rolled over, leaving $13 billion yet to be funded.

The country also has further repayment obligations of $75 billion during FY2024-2026.