Govt to repay $500m loan to China upon its maturity on 23rd

ISLAMABAD: Instead of seeking another rollover in loan repayment for one year, Finance Minister Ishaq Dar on Tuesday directed the State Bank of Pakistan (SBP) to repay loan of $500 million to China upon its maturity on January 23, 2017 keeping in view the macroeconomic stability and build up of foreign currency reserves.

China had given deposits of $1 billion to Pakistan to keep the country’s foreign exchange reserves (FER) at comfortable level by providing two loans worth $500 million each.

One $500 million loan is going to be matured on January 23, 2017 and the second one will mature in the coming June 2017.

“It will give a very positive signal to everyone that Pakistan now enjoys comfortable position on account of foreign currency reserves so the process of repayment of loans kick-starts instead of seeking fresh rollover”, a close aide of finance minister confirmed while talking to The News here on Tuesday night.

According to official announcement here on Tuesday, Finance Minister Senator Mohammad Ishaq Dar has directed the State Bank of Pakistan to repay a loan of US $500 million to the Chinese State Administration of Foreign Exchange (SAFE), upon its maturity on 23rd January 2017.

The loan in the form of a deposit was taken in January 2009, due to the weak current account situation at that time and placed with the State Bank of Pakistan. Since then the deposit was rolled over annually, with the latest maturity date set at 23rd January, 2017.

Instead of yet another roll over for a year, it has been decided to repay the loan, in view of the strong macro economic performance and stable foreign exchange reserves position of the country. 

The Finance Minister has already obtained approval of the prime minister for the repayment of the said loan and has directed the State Bank of Pakistan to make payment of US $500 million to SAFE China on 23rd January, 2017.

Prime Minister Muhammad Nawaz Sharif has formally expressed his deep appreciation to the prime minister and government of China for the critical support provided through the SAFE deposit for stabilising the current account since 2009.

Meanwhile, Finance Minister Senator Mohammad Ishaq Dar chaired a separate meeting here today to review the five-year (2017-18 to 2021-22) macroeconomic framework.

The Finance Minister directed to align medium-term fiscal policy with the targets provided in the amended Fiscal Responsibility and Debt Limitations (FRDL) Act. The minister reiterated the government’s resolve to continue on the path of economic reforms programme that was articulated at the beginning of 2013-14, and which has been successfully pursued in the last three-years.

The minister emphasised the government is focused on further improving the key macroeconomic indicators, including the investment-to-GDP and tax-to-GDP ratios. Furthermore, he underlined the importance of recent amendment in the FRDL Act which, for the first time, has provided for limiting the deficit of the federal government, as it requires the federal government to bring down its deficit in 3 years, starting with 2017-18, to 4% of GDP, and thereafter maintaining it at a maximum of 3.5%. Additionally, he said the law requires that the debt-to-GDP ratio will be brought down from current statutory limit of 60% to be achieved by next year further down to 50% in 15 years. 

The minister directed that these commitments should be built and adhered to in future projections of macroeconomic framework. He highlighted that a comprehensive and thorough macroeconomic framework enables the federal government, provincial governments as well as the private sector to plan ahead with confidence and take vital decisions in a timely manner.

The framework forms the basis of policy decisions in the areas of annual and multi-annual budgets, management of reserves, investments and economic growth. The Finance Secretary presented macro-fiscal forecasts highlighting key areas where policy interventions will be required to take the country on a higher-growth trajectory. It was observed in the meeting that strong economic reforms already implemented by the government will increase economic opportunities and lead to higher economic growth.  The meeting was also attended by other senior officials of the Ministry of Finance.