China Extends $2.4 Billion Loan Repayment Timeline for Pakistan, Confirms Finance Minister

25 days ago
China Extends $2.4 Billion Loan Repayment Timeline for Pakistan, Confirms Finance Minister

In an effort to assist Pakistan in navigating through one of its most challenging economic crises, China has agreed to extend a $2.4 billion loan for an additional two years. This significant decision was announced by Pakistan’s finance minister on Thursday.

China recently provided Pakistan with extended loan maturities, offering a much-needed boost to the country’s delicate foreign exchange reserves. Despite this assistance, Pakistan’s reserves remain sufficient to cover its import bill for only a two-month period.

Ishaq Dar revealed on the X platform (previously known as Twitter) that the Chinese EXIM Bank has agreed to extend the repayment deadline for the $2.4 billion loan by two years. This means that the “principal amounts” originally due in 2024 and 2025 have now been deferred.

However, he said Pakistan would now only make interest payments in both years.

China is a longtime friend of Pakistan and it has played a key role in helping Pakistan avoid a default this year, though there has been concern in the country about how Islamabad would repay the growing Chinese loans.

Some analysts in Pakistan call it a debt trap, though the government says there is no truth to such assumptions. The latest development comes two weeks after the International Monetary Fund deposited a much-awaited first installment of $1.2 billion in Pakistan’s central bank under a bailout to help Pakistan avoid default. It bolstered Pakistan’s foreign exchange reserves, which shrank to $4 billion recently, raising fears of a default.

Pakistan’s foreign exchange reserves jumped to $14 billion last week.

The IMF loans had been on hold since December mainly because of non-compliance with the terms of the previous $6 billion bailout by Pakistan. It forced Pakistan to seek financial help from friendly countries like China, Saudi Arabia and the United Arab Emirates.

Pakistan has said China in recent months gave it $5 billion in loans to avoid a default.

In Pakistan, Beijing is bankrolling the so-called China-Pakistan Economic Corridor, a sprawling package that includes a multitude of mega projects such as road construction, power plants and agriculture.

China has already invested billions of dollars in Pakistan and the package is considered a lifeline for the country, which had struggled until June to overcome the economic crisis when Pakistan and the IMF agreed to a new $3 billion bailout.

On Wednesday, Prime Minister Shehbaz Sharif said that Pakistan no longer faces the risk of default.

Since coming to power in April 2022, Sharif has blamed alleged corruption under former Prime Minister Imran Khan for Pakistan’s economic downturn.

Sharif is likely to step down next month when the current parliament completes its five-year term, paving the way for new parliamentary elections, which will be held under the supervision of an interim government that will be installed next month when the National Assembly is dissolved.