China to provide USD 2.5 bn loan to Pak to boost foreign cash reserves

China will provide USD 2.5 billion in loans to Pakistan to boost the foreign exchange reserves of its “all-weather ally”, a media report said Saturday.

Pakistan is nearly broke with the drying up of foreign cash reserves and mounting external debt.

The country’s USD 8.12 billion reserves, which are below the minimum level that the International Monetary Fund (IMF) and the World Bank (WB) prescribe, are sufficient to cover only seven weeks of imports.

Due to this, the WB and the Asian Development Bank are not providing loans for budget financing.

“Beijing will place the USD 2.5 billion in deposits with the central bank,” a top Finance Ministry official here told The Express Tribune.

With the anticipated USD 2.5 billion deposits, China’s contribution in this fiscal year alone would surge to USD 4.5 billion, the paper said.

Pakistan has struggled to maintain reserves that are not currently sufficient to provide cover to even two months of imports despite receiving USD 4 billion in loans from two Middle-Eastern countries.

In July, China deposited USD 2 billion with the State Bank of Pakistan. In the past five years, China has emerged as Pakistan’s single largest saviour in times of economic crisis.

The money is coming as part of the government’s strategy to secure breathing space till the time its macroeconomic stabilisation measures take effect.

After coming into power, Prime Minister Imran Khan visited China, Saudi Arabia and the UAE to arrange emergency loans to avoid a looming default.

Pakistan has secured USD 14.5 billion worth of commitments from these three countries that have helped largely bridged the external financing gap of the ongoing fiscal year.

Before coming into power, Khan was critical of taking loans to run the country but due to extremely low level of foreign currency reserves and financing requirements standing above USD 25 billion, he sought loans from other countries.

Saudi Arabia will provide a USD 6 billion financial assistance package, which included USD 3 billion in short term loans at an interest rate of 3.18 per cent. Riyadh has already disbursed USD 3 billion.

The State Bank of Pakistan (SBP) Governor Tariq Bajwa on Thursday said the modalities for USD 3 billion oil on deferred payments were finalised this week and an agreement would be signed on February 16 during the visit of Saudi Crown Prince Mohammad bin Salman.

The UAE has agreed to provide USD 3 billion in loans at an interest rate of around 3 per cent and has already disbursed USD 1 billion. A USD 3.2 billion worth of oil facility on deferred payment is being awaited.

Pakistan has arranged these deposits for a term of one to three years but these are likely to be rolled over, in case Islamabad faces difficulties to return them, said the sources in the Finance Ministry.