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Pakistan Secures $3.7 Billion Commercial Loan from China, Boosting Foreign Exchange Reserves to $12.4 Billion

by Web Desk
June 29, 2025
in Business
Pakistan Secures $3.7 Billion Commercial Loan from China, Boosting Foreign Exchange Reserves to $12.4 Billion
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ISLAMABAD – In a critical financial development, Pakistan and China have signed commercial loan agreements worth $3.7 billion, helping Pakistan rebuild its dwindling foreign exchange reserves, which had dipped to a precarious level of $8.9 billion. The newly secured funds have elevated reserves to $12.4 billion, a major boost in Islamabad’s ongoing effort to meet International Monetary Fund (IMF) benchmarks and maintain macroeconomic stability.

This development is particularly significant as Pakistan attempts to rebuild investor confidence, stabilize the rupee-dollar exchange rate, and navigate a turbulent fiscal landscape amid rising debt obligations and a fragile external account balance.


Background: Pakistan’s Financial Crisis and Need for External Financing

Pakistan has been facing persistent balance of payments crises, characterized by a shrinking current account, high levels of external debt, and repeated loan repayments. With a heavy dependency on foreign loans to finance imports and repay maturing obligations, Pakistan’s foreign exchange reserves have remained under pressure.

In the last week of June 2025, reserves fell to $8.9 billion, sparking fears of a potential liquidity crunch. This drop was largely attributed to the repayment of a $2.1 billion Chinese commercial loan, which temporarily pushed reserves below the IMF-mandated floor.

The IMF, in its current standby arrangement with Pakistan, has asked the government to increase reserves to at least $14 billion by the end of the fiscal year. With just days left before the fiscal year ends on June 30, Pakistan urgently required fresh inflows to meet this target — hence, the critical role of Chinese financial institutions.


Details of the $3.7 Billion Loan Deal with China

According to official sources, the newly signed loan agreements were finalized between Pakistan and the following Chinese institutions:

  • Industrial and Commercial Bank of China (ICBC): $1.3 billion
  • Bank of China: $300 million
  • China Development Bank: RMB 9 billion (part of a previously renewed $2.1 billion loan)

These disbursements were made in Chinese yuan (RMB), as part of Beijing’s growing strategy to de-dollarize its international lending and promote the use of its own currency in global trade and financial transactions.

Importantly, a $2.1 billion loan from a consortium of three Chinese banks — the ICBC, Bank of China, and China Development Bank — was re-disbursed this week after being repaid a few days earlier. These were not automatic rollovers and had to be negotiated afresh on revised terms, including a higher interest rate averaging around 7.5%, according to estimates.


Role of Deputy Prime Minister Ishaq Dar in Securing the Agreement

Sources within the Finance Ministry have confirmed that Deputy Prime Minister Ishaq Dar played a pivotal role in securing the loan package. As the disbursement deadline neared, doubts began to emerge about whether China would finalize the $1.6 billion tranche before the fiscal year’s end.

Recognizing the urgency, Dar initiated backchannel diplomatic efforts with Beijing as early as May 19, engaging with senior Chinese financial authorities. His efforts culminated in a successful breakthrough, ensuring that all disbursements were processed by June 28, just two days before the fiscal year closed.


Strategic Importance of Chinese Loans in Pakistan’s Financial Architecture

China has been Pakistan’s most reliable financial partner in recent years. Beyond this $3.7 billion deal, China continues to support Pakistan through:

  • $4 billion in cash deposits held with the State Bank of Pakistan
  • $5.4 billion in commercial loans extended by Chinese state-owned banks
  • $4.3 billion in trade finance facilities

This multifaceted support structure has allowed Islamabad to avoid sovereign default several times over the past five years, particularly when other international lenders were hesitant to offer assistance due to structural imbalances in Pakistan’s economy.


Additional Multilateral Support: $1 Billion from ADB

While Chinese support formed the cornerstone of the recovery in reserves, multilateral institutions also contributed. The Asian Development Bank (ADB) disbursed a $1 billion non-Chinese commercial loan last week. This inflow, along with the $3.7 billion from China, pushed cumulative inflows to $4.7 billion, against total outflows of around $2.7 billion for the month of June.

According to the State Bank of Pakistan, these inflows helped increase reserves by over $3.1 billion, easing concerns around exchange rate volatility, and import financing constraints.


Pressure on the Rupee and Commercial Banking Sector

Despite the inflows, Pakistan’s foreign currency liquidity situation remains fragile. The earlier sharp fall in reserves caused the rupee to depreciate, as demand for the US dollar surged and commercial banks refused to open letters of credit (LCs) due to a shortage of forex.

Currency traders reported increased buying by the central bank to replenish reserves, further draining the open market and putting upward pressure on the exchange rate.

With the new inflows stabilizing the reserves temporarily, the government hopes the rupee will stabilize and the central bank will gradually ease restrictions on imports and LCs.


Outlook: Toward the $14 Billion IMF Target

Finance Minister Muhammad Aurangzeb has expressed confidence that Pakistan will meet the IMF’s reserve benchmark of $14 billion before the fiscal year ends. With $12.4 billion now in reserves and additional inflows expected from World Bank, Islamic Development Bank, and other lenders, this goal appears within reach.

However, analysts warn that these improvements are not sustainable unless Pakistan implements deep structural reforms. These include:

  • Broadening the tax base
  • Reducing reliance on short-term external borrowing
  • Encouraging exports and foreign direct investment (FDI)
  • Rationalizing energy subsidies

China’s Refusal to Reschedule Government Loans

Despite Pakistan’s request to reschedule concessional and preferential loans from China’s Exim Bank, Beijing has declined the proposal, insisting on repayment as per the original timelines.

These loans include low-interest development financing for infrastructure projects under the China-Pakistan Economic Corridor (CPEC). While China remains supportive on the commercial side, its reluctance to restructure sovereign loans suggests that Beijing expects better fiscal discipline from Islamabad in the future.


Conclusion: A Critical Financial Lifeline, but Not a Long-Term Solution

The $3.7 billion loan deal with China has provided Pakistan with a much-needed short-term financial breather, stabilizing reserves, strengthening the rupee, and keeping the country on track with IMF commitments. However, it also underscores Pakistan’s high dependence on external loans, particularly from China, to maintain financial solvency.

The real challenge lies ahead — creating a sustainable and resilient economy by shifting focus from borrowing-based survival to export-led growth, domestic resource mobilization, and institutional reform.

Until then, every fiscal year-end will likely be a race against time, relying on strategic diplomacy and international lenders to keep the economic engine running.

Read more:..

Tags: commissiongovernmentinternationalNationalsocial mediatime line news
Web Desk

Web Desk

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