Pakistan Seeks Additional $1.4 Billion Boost from China Amid Fiscal Strains

Pakistan has formally requested an extra 10 billion yuan loan from China to address ongoing financial challenges. The move aims to increase the existing currency swap agreement to bolster the nation's foreign reserves. Notably, this request follows China's recent extension of a $4.3 billion facility.

In a strategic move to alleviate its persistent external financing challenges, Pakistan has officially solicited a supplementary loan of 10 billion yuan, approximately 1.4 billion USD, from China. The announcement, made on Saturday, highlights the ongoing fiscal pressures faced by the nation as reported by the Express Tribune.

During discussions with China's Vice Minister of Finance Liao Min, Pakistan's Finance Minister Muhammad Aurangzeb urged an increase in the Currency Swap Agreement limit to 40 billion yuan. As the Ministry of Finance noted, Pakistan has fully utilized the 30 billion yuan (4.3 billion USD) trade facility for debt repayment and seeks an additional 10 billion yuan. This request, occurring alongside the International Monetary Fund and World Bank annual meetings, could elevate the total facility to 5.7 billion USD if approved.

Historically, Pakistan's appeals for increased loan limits have been declined by Beijing. This request comes shortly after China extended the existing 4.3 billion USD facility for three more years, a decision confirmed during Chinese Prime Minister Li Qiang's recent visit. The extension granted Pakistan until 2027 for debt repayment. Despite not specifying reasons for the new request, reports suggest uncertainties with pipeline loans necessitate further funding.

In parallel efforts to bridge the financial gap, Pakistan accepted a high-interest commercial loan worth 600 million USD, which prompted the International Monetary Fund to clarify it wasn't linked to Pakistan's 7 billion USD bailout package. Finance Minister Aurangzeb later clarified the terms during a National Assembly Standing Committee meeting, noting the government secured the loan at an 11 percent interest rate.

The ministers reiterated the robust strategic partnership between Pakistan and China, originally solidified in a 2011 currency swap agreement supporting trade and liquidity. The agreement was amended in 2021 to extend its limit to 30 billion yuan for three years. The appeal from Aurangzeb follows a similar 2022 request for increased financial assistance due to delayed loans from other creditors.

Pakistan has primarily leveraged the Chinese trade finance facility to manage foreign debts and stabilize currency reserves, currently at 11 billion USD. China also extended 4 billion USD in SAFE deposits and another 4 billion in commercial loans, yet reserves are still insufficient for debt obligations to China. Finance Minister Aurangzeb expressed gratitude to China for its unwavering support and assistance with securing the IMF's Extended Fund Facility.

The finance minister also underscored Pakistan's intent to learn from China's economic reforms, planning to issue its first Panda bond in China to diversify funding sources. Aurangzeb assured comprehensive security measures for Chinese workers, highlighting plans to enhance and integrate online payment systems between the two countries.

(With inputs from agencies.)