In order to boost the crisis-hit economy, Pakistan on Tuesday inked a loan facility agreement with China worth $2.3 billion. The deal with a Chinese consortium of banks came in the wake of depleting foreign reserves and the free fall of the currency. The loan is expected to provide some relief to the cash-strapped economy and enable Islamabad to make payments for crucial imports.
The “inflow” is said to arrive in a couple of days, Pakistan Finance Minister Miftah Ismail wrote in a Twitter post. He also thanked the Chinese President Xi Jinping -led Beijing government for “facilitating the transaction.” In a detailed account, Ismail wrote: “Chinese consortium of banks has today (Wednesday) signed the RMB 15 billion ($2.3 billion) loan facility agreement after it was signed by the Pakistani side yesterday (Tuesday).”
The loan deal provides minimal relief to the parched Pakistani economy. The Pakistani Rupee has suffered a loss of 34% of its value in the fiscal year 2021-22. The exchange rate for a dollar stood at PKR 210 on Monday. In addition, the forex reserves held by the State Bank of Pakistan (SBP) also fell below $9 billion as of June 10. The reserves stayed way below the import cover level for weeks now. According to the Dawn newspaper, Pakistan currently needs at least $37 billion to finance its debt repayments and other clearances next year.
However, experts suggested that the deal only adds to Pakistan’s reckless borrowing habit from China. According to the 2021-22 Economic Survey, China is the largest bilateral creditor to Pakistan with outstanding loans of $14.5 billion. Pakistan owes about $8.77 billion to three Chinese commercial banks and three state-owned banks.
Chinese backing comes ahead of IMF bailout
The deal comes as Islamabad is looking forward to reviving its $6 billion assistance package from the International Monetary Fund (IMF). The resumption of the stalled aid will allow Pakistan access to $1 billion immediately, which Islamabad needs to restore its steadily declining forex reserves. After inordinate delays over months-long negotiations, the deal is expected to be secured in the coming days, Dawn reported. As per reports, Pakistan Prime Minister Shehbaz Sharif’s government needs the IMF to pass the deal before June 28 for legal implementation from July 1 in its updated budget.