Pakistan has requested China to reschedule another $3.4 billion worth of official and guaranteed debt for two years, which is maturing during the International Monetary Fund programme period, in a move that highlights Islamabad’s reliance on Beijing’s largesse.
The government sources said that the rescheduling of the $3.4 billion debt was very crucial for Pakistan to meet its $5 billion external financing gap that the IMF identified at the time of signing of the bailout package in September.
The sources said that Pakistan was seeking a two-year extension in repayment of the official and guaranteed debt obtained from Chinese Export-Import (Exim) Bank. The guaranteed debt is obtained by the State-Owned Enterprises, which is only one-third of the $3.4 billion repayments.
Finance Minister Spokesman Qumar Abbasi did not respond to a question whether China has agreed to rollover the debt. But the Pakistani authorities remained hopeful for a helping Chinese hand, which often quietly helps Islamabad without any fanfare and publicity.
It is the second such request that Pakistan made to the Chinese Exim Bank in the past one and half years.
In July last year, the then finance minister and now Deputy Prime Minister Ishaq Dar had announced the $2.4 billion debt rescheduling by China. Dar had said that the Chinese EXIM Bank had rolled over for two years principal amounts of loans totaling $2.4 billion, which were due from July 2023 to June 2025. Pakistan was only making interest payments on the $2.4 billion rescheduled debt.
The sources said that Pakistan has formally requested the Exim Bank of China to reschedule the $3.4 billion debt that was maturing between October 2024 and September 2027.
The $750 million Exim bank debt is maturing within this fiscal year and its rescheduling is very important for Islamabad and the IMF to certify that the $7 billion programme is fully funded and Pakistan’s debt is sustainable.
The Pakistani authorities were of the view that the Exim Bank’s repayments had contributed to the external financing gap of $5 billion, which the IMF had identified at the time of signing the $7 billion Extended Fund Facility (EFF) in September.
Out of the $5 billion financing gap identified by the IMF, roughly $2.5 billion pertained to the current fiscal year. Although Islamabad has assured the IMF that it had made the requisite arrangements for the $2.5 billion financing requirements, a couple of promised borrowings are falling behind the schedule, said the sources.
The development comes amid the IMF’s decision to send an unscheduled Mission to Pakistan after Islamabad did not meet some major conditions agreed for the July-September period of this fiscal year. The IMF team is reaching Islamabad on Monday and will stay till next Friday to ‘discuss recent developments and programme performance to date’. According to the schedule approved by the IMF board at the time of approval of the $7 billion package, first programme review is scheduled for March 2025 and the pre-scheduled arrival of the Mission confirms apprehensions that the $7 billion deal was badly negotiated by both sides.
Despite the arrival of the unscheduled mission, the formal review for the approval and release of the next $1.1 billion tranche will ‘be no earlier than the first quarter of 2025’.
Pakistan is heavily dependent on Beijing for remaining afloat -the friendly nation that is constantly rolling over the $4 billion cash deposits, $6.5 billion worth commercial loans and $4.3 billion trade financing facility.
Beijing has recently expressed concerns over the security of its “citizens, projects and institutions” in Pakistan, demanding a safe working environment for further expanding the economic relations. The $3.4 billion request is in addition to a $1.4 billion new loan that Finance Minister Muhammad Aurangzeb requested during his last month interaction with the Chinese vice Finance Minister in Washington.
Aurangzeb “requested the Chinese side to raise the limits under the Currency Swap Agreement to CNY 40 billion,” according to a statement from the Ministry of Finance last month. Pakistan has already used the existing CNY 30 billion ($4.3 billion) Chinese trade facility to repay its debts and now seeks to raise this limit by an additional CNY 10 billion, translating to $1.4 billion at the current exchange rate. It is not clear whether China has entertained the $1.4 billion new request or not.
Pakistan had also requested for over $16 billion Chinese energy debt rescheduling but its wishes to secure at least a memorandum of understanding to express intentions by China for rescheduling remained unfulfilled last month.
