Pakistan has again requested China to reschedule $3.4 billion debt for two years to bridge a foreign funding gap identified by the International Monetary Fund – in a move that’s success will largely address the external funding concerns before the upcoming programme review talks.
Deputy Prime Minister Ishaq Dar made the formal request during this week’s visit to Beijing, according to the government sources. They said that the Chinese authorities were positive and, hopefully, Beijing would accept the request to lessen Pakistan’s external funding woes.
Pakistan requested the Export-Import (Exim) Bank of China to consider rearrangement of its loans falling due from October 2024 till September 2027, said the government officials. They said that Pakistan was required to identify financing sources to fill the external financing gap of $5 billion for the three-year programme period.
It is the second time that Pakistan made a request to China in the past five months to reschedule the $3.4 billion debt provided by its Exim bank. Earlier, in September last year the Finance Minister had written to Exim Bank and requested the rescheduling.
According to a joint China-Pakistan statement issued on Thursday, the Pakistani side reiterated its high appreciation for China’s valuable support for the fiscal and financial stability of Pakistan. The statement was issued at the conclusion of President Asif Ali Zardari’s state visit to Beijing.
The $3.4 billion debt was maturing between October 2024 and September 2027 –which coincided with the three-year IMF programme period. The bank has given two types of loans –the direct lending and the guaranteed lending to State-Owned Enterprises, said the sources.
The rescheduling is said to be critical for Pakistan and it is part of the overall $5 billion external financing plan that Pakistan has to implement to bridge the gap, identified by the IMF at the time of signing of the bailout package in September last year.
Pakistan has sought a two-year extension in repayment of the official and guaranteed debt obtained from Chinese Export-Import (Exim) Bank. The country would keep making interest payments.
From October 2024 to September 2025, the $505 million Exim direct loans to the government would mature –the period that will cover the first two reviews of the IMF programme. Then from October 2025 to September 2027, another $1.7 billion worth of direct loans to the government would mature. This brings total direct lending that requires a two-year extension to $2.2 billion.
China’s $1.2 billion loans to the SOEs are also maturing from October 2024 to September 2027 and majority of those are maturing from October this year.
In July 2023, the then finance minister and now Deputy Prime Minister Ishaq Dar had announced the $2.43 billion worth 31 loans rescheduled by China for two years. 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.
In case Pakistan does not repay the $3.4 billion debt, its external financing gap would reduce by the same amount. The government this week also secured a $1.2 billion Saudi oil facility and took a $300 million loan through the United Bank Limited to bridge the overall financing gap.
Pakistani authorities have already held at least a couple of meetings on the issue of $3.4 billion debt restructuring and exchanged the data with the Exim bank.
Pakistan’s first formal review of the $7 billion programme is expected to begin from the first week of March and its successful conclusion will pave the way for the release of the over $1 billion next loan tranche.
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.
Fitch Ratings, one of the three global credit rating agencies, said on Friday that securing sufficient external financing remains a challenge for Pakistan, considering large maturities and lenders’ existing exposures.
It added Pakistan budgeted about $6 billion of funding from multilaterals, including the IMF, for this fiscal year but about $4 billion of this will effectively refinance the existing debt.
The $3.4 billion request is in addition to a $1.4 billion new loan that Finance Minister Muhammad Aurangzeb requested during his interaction with the Chinese vice Finance Minister in Washington.
Aurangzeb had requested China to raise the limits under the Currency Swap Agreement to CNY 40 billion. Pakistan has already used the existing CNY 30 billion, or $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. Fitch stated that Pakistan has continued to make headway restoring economic stability and rebuilding external buffers. But progress on difficult structural reforms will be a key to upcoming IMF programme reviews and continued financing from other multilateral and bilateral lenders.
It predicted that the foreign reserves are set to outperform targets under the IMF programme and Fitch’s earlier forecasts.
But the foreign exchange reserves remain low relative to funding needs. Over $22 billion of public external debt matures in this fiscal year, including nearly $13 billion in bilateral deposits, stated Fitch. It believed that the bilateral partners will rollover, as per their promises to the IMF. Saudi Arabia already rolled over $3 billion in December and the UAE $2 billion in January.