Pakistan Wednesday inked a $2.3 billion loan facility agreement with a consortium of Chinese banks to help shore up the depleting foreign exchange reserves and appreciate the fast depreciating rupee.
Finance Minister Miftah Ismail announced the development on his Twitter handle, revealing that the inflows were expected within a couple of days. “We thank the Chinese government for facilitating this transaction,” he said. The agreement with Chinese banks is expected to bolster the country’s reserves and enable it to make import payments while lending some support to the rupee as well which has lost over 34% to the dollar since the start of the outgoing fiscal year 2021-22. The development comes as a massive relief to the economic policymakers after the foreign exchange reserves fell below $9 billion as of June 10, with the level staying at less than six weeks of import cover.
Taking to his Twitter, Federal Minister for Foreign Affairs Bilawal Bhutto-Zardari also acknowledged China for its support. Bilawal wrote: “Grateful to President Xi Jinping, Foreign Minister Wang Yi and the people of China.” He added that the people of Pakistan were grateful for the continued support of our all-weather friends.
The news also came as a lifeline with the country already facing an uncertain economic situation as it remains engaged in talks with the International Monetary Fund (IMF) on the revival of a stalled Extended Fund Facility. Last night, Pakistan and the IMF evolved a broader agreement on the budget for the fiscal year 2022-23 to revise upward the Federal Board of Revenue (FBR) target and slash expenditures to achieve a revenue surplus in the next fiscal year. Resident Representative to Pakistan Esther Perez Ruiz later said discussions between the IMF and Pakistan were underway and major progress had been made regarding the budget for the next fiscal year.
Earlier this month, the finance minister had shared the “good news” that the terms and conditions for refinancing the deposit by Chinese banks had been agreed. At the time, he said the loan would help “shore up our foreign exchange reserves”.
On June 2, while addressing a press conference, Ismail said China had withdrawn the loan on March 25 and set tough conditions under which Pakistan could not utilize those funds.
However, he said after a visit by Foreign Minister Bilawal Bhutto Zardari and follow-up discussions by Prime Minister Shehbaz Sharif with Prime Minister Li Keqiang, the Chinese side had not only agreed to roll over the amount, but also done so at a cheaper interest rate of 1.5pc plus Shanghai Interbank Offered Rate (Shibor) instead of earlier 2.5pc plus Shibor.