Pakistan obtains $1.8 Billion loan rescheduling agreement from China

ISLAMABAD: Pakistan has once again come to the aid of its iron-fisted friend China amid mounting pressure from the International Monetary Fund (IMF).

As Pakistan struggles to revive its economy, Beijing has agreed to restructure $1.8 billion in loans for the South Asian nation, providing partial relief as the country races to meet its foreign exchange reserve targets under an ongoing program with the International Monetary Fund (IMF).

The debt relief, which includes concessional loans and preferential credit for buyers from China’s Export-Import (EXIM) Bank, is less than the $3.4 billion Pakistan initially sought last year. However, officials say the aid is crucial to boosting the country’s reserves and maintaining economic stability.

The restructured loans, linked to various infrastructure projects, will be finalized by next month, senior government sources said. The relief does not include commercial loans from Chinese banks, and China has refused to include some credit facilities for buyers in the package.

The development comes after Pakistan’s foreign reserves temporarily fell below $10 billion after significant payments to China last week. Finance Minister Muhammad Aurangzeb has since confirmed that reserves are expected to exceed $14 billion by the end of the fiscal year, which closes on Monday, once Beijing refinances the outstanding loans.

Earlier this month, Pakistan asked China to reschedule $3.4 billion in loans due between October 2024 and September 2027 to help bridge a $5 billion external financing gap flagged by the global lender. Chinese officials opted to exclude pandemic-era loans and offered to restructure only those maturing between September 2025 and September 2027.

This is the second time in two years that Exim Bank has offered Pakistan debt relief. In 2023, the bank had granted a two-year extension on outstanding loans of $2.43 billion.

In addition to China’s support, Pakistan is expecting an inflow of $1 billion through an Asian Development Bank (ADB)-backed loan by June 26, along with another $415 million in external funding.

Pakistan faces external debt repayments of about $20 billion in the next fiscal year, including $13 billion in bilateral reserves.