Pakistan Seeks Debt Rescheduling from China to Address Financial Challenges

According to government sources, China responded positively, and Pakistan hopes the request will be accepted to mitigate its financial constraints.

Breakdown of Debt and Proposed Rescheduling

Total Debt in Question

Pakistan’s debt with Exim Bank includes:

• $2.2 billion in direct loans to the government

• $1.2 billion in loans to State-Owned Enterprises (SOEs)

Previous Debt Relief

This is the second request in five months for debt rescheduling. In July 2023, China rolled over $2.4 billion in loans for two years, allowing Pakistan to defer principal payments while continuing interest payments.

New Rescheduling Plan

Pakistan has proposed a two-year extension on repayments:

• $505 million in direct government loans maturing between Oct 2024 – Sep 2025

• $1.7 billion in direct loans maturing from Oct 2025 – Sep 2027

• $1.2 billion in SOE loans maturing within the same period

Financial Impact and IMF Commitments

Pakistan’s External Financing Gap

Pakistan needs to bridge a $5 billion external financing gap, as identified by the IMF during the signing of its $7 billion bailout program in September 2023.

Importance of Chinese Support

China is a key financial partner for Pakistan, regularly extending financial aid:

• $4 billion in cash deposits

• $6.5 billion in commercial loans

• $4.3 billion in trade financing

Securing debt relief from China would significantly ease Pakistan’s financial strain and help meet IMF requirements for future loan disbursements.

Other Financial Measures Taken by Pakistan

Saudi Oil Facility & Commercial Loans

To address the financing gap, Pakistan recently:

• Secured a $1.2 billion oil facility from Saudi Arabia

• Acquired a $300 million commercial loan through United Bank Limited (UBL)

New Loan Request from China

In addition to rescheduling, Pakistan has requested a $1.4 billion new loan from China’s vice finance minister to raise its Currency Swap Agreement limit from CNY 30 billion to CNY 40 billion ($4.3 billion to $5.7 billion).

Fitch Ratings & Economic Outlook

Debt Maturities and Rollovers

Fitch Ratings highlighted that Pakistan faces over $22 billion in external debt maturities this fiscal year, including:

• $13 billion in bilateral deposits

• $6 billion expected from multilateral lenders like the IMF

Saudi Arabia and the UAE have already rolled over $5 billion in deposits, and China is expected to do the same.

Challenges & Future Prospects

Fitch noted that while Pakistan’s foreign reserves have improved, they remain low compared to debt obligations. Sustained reforms and successful IMF reviews will be crucial for securing further financial support from international lenders.

Conclusion

Pakistan’s financial stability heavily relies on China’s decision to grant debt relief, as well as continued support from IMF and other international partners. The success of upcoming economic reforms and foreign financing arrangements will determine Pakistan’s ability to navigate its financial crisis.