China agrees to fresh rollover of $2.5bn commercial loans

ISLAMABAD: Out of the approximately $21 billion in outstanding official loans, including commercial, bilateral and safe deposits, China has agreed in principle for granting a fresh rollover of $2.5 billion in commercial loans to Pakistan for one year.

Earlier, Beijing had granted rollover of $2 billion loan amount in the recent past. In totality, China has granted rollover of approximately $4.5 billion in loans to help Islamabad manage its external sector vulnerabilities.

Top official sources confirmed to The News on Wednesday night that China also assured Islamabad of provision of diesel in the wake of shortages at international level. 

Pakistan Foreign Minister Shah Mehmood Qureshi has been currently visiting China. In his video message, Foreign Minister Shah Mehmood Qureshi confirmed that China had agreed in principle to roll over loans for which Pakistani authorities made a fresh request. Now both sides would work out details and an announcement will be made soon after the completion of procedural requirements.

Pakistani authorities were making plans for requesting China for granting rollover on bilateral, commercial, and safe deposit loans of over $20 billion for five years period. It is not yet confirmed whether this request was tabled before the Chinese authorities or not but it came under discussion among top Pakistani officials in order to avoid meeting procedural requirements every year.

The Ministry of Finance on Wednesday night issued a statement and said that the Government of Pakistan and People’s Republic of China have strong economic ties spanning over the last many decades. The ongoing financing facilities include SAFE deposits, bilateral as well as commercial loans. To buttress the efforts of economic stabilization, the Government of Pakistan has been in communication with the Chinese authorities for the roll-over/refinancing of all ongoing facilities upon their maturity. Two facilities of worth USD4.3 bn matured in the month of March, of which SAFE deposits worth USD2 billion have been rolled over and the roll-over of the syndicate facility of RMB15,000 million (i.e. approximately USD2.3 bn) is being processed. These facilities are being used for balance of payments and budgetary support.

The official data showed that Pakistan owed $16 billion of non-Paris Club countries on December 31, 2021 out of which China’s bilateral debt stood at $14.815 billion. China’s Safe Deposits stood at $4 billion till December 31, 2021. Pakistan had to manage external financing requirements under the IMF condition, which also aimed to avoid depletion of foreign currency reserves.

There is a third head under which China provided loans to Pakistan in recent years. Pakistan owed commercial loans to the tune of $10.778 billion provided by different consortium of international and domestic banks in dollars. It is estimated that Chinese’s banks also provided commercial loans to the tune of over $2.5 billion till December 31, 2021.

The IMF has assessed that Pakistan’s gross external financing sector requirements stood at over $30 billion for the current fiscal year when the current account deficit was projected at $12.9 billion on the completion of 6th review under $6 billion Extended Fund Facility (EFF) program for Pakistan. However, these projections have been dashed to the ground as the current account deficit has already touched $12.2 billion for the first eight months (July-Feb) period for the current fiscal year. Now itmight escalate to $16 to $18 billion till end June 2022. The gross financing requirements might also go up to $34 to $35 billion for the current fiscal year. The foreign currency reserves held by the State Bank of Pakistan reduced by $869 million on the week ended on March 18, 2022.

The IMF also assessed that the gross external financing requirements would be standing at $35 billion for the next budget 2022-23, so there was no easy way out left for the opposition parties if they succeed in toppling the PTI government through the No-Confidence Motion against Prime Minister Imran Khan.