Pakistan seeks RMB10 billion hike in currency swap agreement with China

ISLAMABAD: Amid dwindling foreign exchange reserves, Pakistan has made a fresh request to China for enhancing the limit of the currency swap agreement from RMB 30 billion to RMB 40 billion in order to promote bilateral trade and investment.

The government also made a request to China to provide financing for 1,200 MW Chashma-5 power plant. Both countries agreed on the project in 2017, but no progress was made for several years.

Pakistan’s high-powered delegation, led by Minister for Planning Ahsan Iqbal, and comprising Special Assistant to PM on Finance Tariq Bajwa as well as other officials visited China to hold talks for raising the limit of currency swap agreement by RMB 10 billion and restoring financing for the construction of C-5 Nuclear Power Plant. “Negotiations are underway and Pakistan is expecting a positive outcome soon,” said top official sources.

When Minister for Planning Ahsan Iqbal was contacted on Friday after his return from China, he refused to share details on the currency swap agreement, saying it was the domain of the finance ministry. However, he said negotiations were underway on financing for C-5 Nuclear Power Plant, adding both sides discussed possibilities to enhance the progress on CPEC projects.

The sources said that the request for enhancing the currency swap limit had been made first time during the tenure of former premier Imran Khan but China asked the then government to utilise the existing limit first before making a request to enhance the limit. However, this time, the Pakistani authorities approached China after utilising RMB 30 billion facility.

According to the former governor SBP, the objectives of the swap is to promote bilateral trade and make direct investment in the local currencies. Since the CSA is a bilateral financial transaction, all terms and conditions equally apply to both countries, and the pricing is based on standard market benchmarks acceptable in the respective domestic markets.

As per the CSA, the central banks of both countries will have the ability to draw on the swap line at any time during the tenure of the swap. Besides, SBP can purchase the Chinese Yuan against its local currency (PKR), and repurchase its local currency with the Chinese Yuan on a predetermined maturity date and exchange rate.