China gives Pakistan one-year extension on $2bn loan repayment

ISLAMABAD: In a major development, China rolled over $2 billion loan to Pakistan for one year, confirmed the Ministry of Finance on Saturday.

According to the ministry, the loan was originally due for repayment on March 24, but China has agreed to extend the deadline, providing Pakistan with crucial financial relief.

This extension comes as Pakistan faces economic challenges, including pressure on foreign exchange reserves.

Around 92% of Pakistan’s external debt is owed by three major sources, including multilateral and bilateral creditors as well as through international bonds. Among the bilateral creditors, China is on the top, keeping in view the total external debt and liabilities.

Meanwhile, the cash-strapped country is seeking a fresh loan tranche from the International Monetary Fund (IMF), with the Washington-based lender's team currently in Pakistan for negotiations.

Islamabad secured the $7 billion Extended Fund Facility (EFF) last summer to help claw its way out of an economic crisis.

The programme has played a key role in stabilising Pakistan's economy and the government has said the country is on course for a long-term recovery.

Finance Minister Muhammad Aurangzeb told Reuters that Pakistan was "well positioned" for the first review of its $7 billion IMF bailout programme.

Pakistan was able to build some trust with the IMF by completing a short-term nine-month programme last year. Previous loan programs in Pakistan ended prematurely or saw delays after the governments at the time faltered on meeting key conditions.

Moreover, the government is negotiating a Rs1.25 trillion ($4.47 billion) loan with commercial banks to reduce its bulging energy sector debt, the power minister and banking association said.

Plugging unresolved debt across the sector is a top priority under an ongoing $7 billion IMF bailout, which has helped Pakistan dig its way out of an economic crisis.

"The loan will be repaid over a period of 5 to 7 years," Power Minister Awais Leghari told Reuters, adding that the term sheets are yet to be signed.