$2.3 billion loan agreement signed with China

ISLAMABAD:

China signed a $2.3 billion commercial loan agreement with Pakistan to boost its rolling foreign exchange reserves, as the government awaits the renewal of three other maturing loans totaling $2 billion.

“The Chinese Consortium of Banks today signed the RMB 15 Billion ($2.3 Billion) Loan Facility Agreement after it was signed yesterday by the Pakistani side,” the minister tweeted on Wednesday. Finance Miftah Ismail.

He added that the influx was expected within days, expressing his gratitude to the Chinese government for facilitating the transaction.

Official foreign exchange reserves remain in single digits at $8.9 billion. However, these loans will give it a boost once Chinese banks transfer the money, opening blocked funding pipelines.

A day earlier, the State Bank of Pakistan refuted rumors that its $8.9 billion foreign exchange liquid reserves had not dried up and were “fully usable”.

Pakistan had repaid the $2.3 billion trade loan in March in hopes of recovering it in April. However, China had placed a condition that the money could not be used due to Pakistan’s weakened external sector position.

China also wanted Pakistan to remain committed to the International Monetary Fund (IMF) loan program.

On Tuesday, the finance minister announced an agreement with the IMF on budget figures, aligning the figures with the global lender’s income and spending assessments for the next financial year.

The government has also agreed to some of the tough terms in a bid to reach an agreement with the IMF.

The resident representative of the global lender, Esther Perez, said in a brief statement on Wednesday that “discussions between IMF staff and the authorities on policies to strengthen macroeconomic stability over the coming year continue, and significant progress has been made in the 2022-23 fiscal year.” ”.

However, Finance Ministry officials said the agreement reached with the IMF on the budget would help complete the legislative process before the end of the current fiscal year next Thursday.

In March 2019, the China Development Bank provided a three-year commercial loan at a six-month Shanghai Interbank Offered Rate (SHIBOR) plus 2.5%.

Earlier this month, Miftah said Beijing had agreed to cut the rate by 1%. At the current 6-month SHIBOR rate of 2.32% + 1.5%, the lending rate now stands at around 3.8%, which is better than that practiced by Saudi Arabia for its deposits of 3 billions of dollars.

The Chinese government also withdrew its condition that Pakistan could not use proceeds from the $2.3 billion commercial loan. He also agreed to reduce the interest rate on the loan from 1% to around 3.8%. This relieved the Ministry of Finance, which lobbied for two months to recover the loan, which it repaid in March this year.

Pakistan has made another request to China for the renewal of 2 billion dollars of debt. Of that, two loans worth $1 billion mature next week and another $1 billion in the fourth week of July.

A senior finance ministry official hoped to receive “positive news” from China in the form of a renewal of those maturing loans.

Prime Minister Shehbaz Sharif has already formally asked the Chinese government to roll over the two maturing loans, officials say. Earlier in March this year, China also renewed more than $2 billion in SAFE deposit loans.

However, the Department of Finance did not show these $4 billion loan renewals in next year’s borrowing plan.

The budget books showed that total external revenue was estimated at $17 billion, or Rs 3.13 trillion, for the financial year 2022-23. Budget documents showed Pakistan planned to launch $2 billion worth of sukuk and international Eurobonds in the next fiscal year.

It can only get a better price if the IMF program is reinstated as foreign investors fear a default on previous obligations. The cabinet on Tuesday approved the pledging of six more domestic assets to issue domestic and international Sukuk bonds.

Miftah had said Pakistan needed $41 billion in gross foreign loans in the next fiscal year to repay $21 billion in maturing loans, fund a current account deficit of $16 billion and receive additional funds. to improve reserves.

Read also: “A broad agreement” reached with the IMF to end uncertainty

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