Pakistan has requested China to reschedule $3.4 billion loan, to which Chinese officials have expressed a positive attitude. Government sources say that Pakistan is facing a $5 billion external financing gap. There is a need to identify financing sources for the three-year IMF program and it is hoped that China will accept the request.
According to details, Pakistan has once again requested China to reschedule the $3.4 billion loan for 2 years to fill the gap in foreign funding identified by the International Monetary Fund. The success of this move will largely remove concerns regarding external funding before the upcoming review talks of the program.
According to government sources, Deputy Prime Minister Ishaq Dar made this formal request during his visit to Beijing this week. He said that Chinese officials are positive and it is hoped that Beijing will accept Pakistan’s request to reduce external funding problems.
Government officials said that Pakistan has requested the Export-Import (Exim) Bank of China to consider rescheduling loans due from October 2024 to September 2027. They said Pakistan needs to identify financing sources to fill the external financing gap of $5 billion for the three-year program period. This is the second time that Pakistan has requested China to reschedule a loan in the last five months.
Earlier, in September last year, the Finance Minister had written to the Exim Bank and requested the rescheduling. According to the China-Pakistan joint statement issued on Thursday, the Pakistani side reiterated its strong appreciation for China’s valuable support for Pakistan’s monetary and financial stability.
The statement was issued at the end of President Asif Ali Zardari’s official visit to Beijing. The $3.4 billion loan was maturing between October 2024 and September 2027. This period coincides with the duration of the IMF’s three-year program.
Sources said that the bank has given two types of loans, one direct loan and the other guaranteed loans to state-owned enterprises. It is being told that the rescheduling is important for Pakistan and is part of the overall $5 billion external financing plan.
Pakistan has requested to reschedule the loan for two years. During this time, Pakistan will continue to pay interest. The period of EXIM’s direct loans of $505 million to the government will end from October 2024 to September 2025.
This period will cover the first two reviews of the IMF program. Then, from October 2025 to September 2027, another $1.7 billion loan given directly to the government will end.
Thus, the total direct loan will be $2.2 billion, which will need to be extended. China’s $1.2 billion loans to SOEs are also maturing from October 2024 to September 2027, with most of them maturing in October this year.
In July 2023, then Finance Minister and now Deputy Prime Minister Ishaq Dar announced that 31 loans worth $2.43 billion had been rescheduled by China for two years. Pakistan was paying only interest on the rescheduled $2.4 billion loan.
Pakistan’s friend China has been continuously extending the repayment period of $4 billion in cash reserves, $6.5 billion in commercial loans and $4.3 billion in trade finance facility.
Fitch, one of the three global credit rating agencies, said on Friday that securing sufficient external financing is a challenge for Pakistan, given the large maturities and existing exposures of lenders.
The $3.4 billion request is in addition to the $1.4 billion new loan requested by Finance Minister Muhammad Aurangzeb during talks with the Chinese Vice Finance Minister in Washington.
