Islamabad: China has assured Pakistan of refinancing USD 3.7 billion in commercial loans—this time in renminbi (RMB)—before June-end, reported The Express Tribune, citing government sources. The refinancing is expected to help Pakistan maintain its foreign exchange reserves in double digits.
This marks a significant shift in Beijing’s approach. “Unlike in the past, when Beijing has given loans in non-Chinese currency too, this time Pakistan’s strategic ally has decided not to give loans in the United States currency as part of its drive to decouple the economy from the dollar,” the sources said.
Loan repayments and refinancings underway
Pakistan has already repaid a USD 1.3 billion loan to the Industrial and Commercial Bank of China (ICBC) in three tranches between March and April. Subject to clarifications sought by ICBC, officials said the bank is expected to re-lend the funds in RMB within days.
Originally issued two years ago at floating interest rates averaging 7.5 per cent, the ICBC loan is being considered for rollover. Additionally, a USD 2.1 billion (equivalent to 15 billion RMB) syndicated financing loan involving three Chinese commercial banks—China Development Bank (CDB), Bank of China, and ICBC—is due for repayment in June.
“Pakistan will pay at least three days ahead of the maturity to make sure that the money is given back before the close of the fiscal year. China would give this money in RMB currency,” a source stated.
New terms proposed for three-year loan rollover
The CDB had originally lent 9 billion RMB, the Bank of China 3 billion RMB, and ICBC 3 billion RMB. Government sources revealed that the syndicated loan will be extended for three years, although the interest rate is yet to be finalised.
Chinese authorities have proposed two options: “It has proposed that Pakistan should either get the loan at a fixed interest rate or at a floating rate but that would not be based on Shanghai Interbank Offered Rate (Shibor),” according to officials.
IMF requirements and reserve targets
Maintaining double-digit reserves by the end of June is crucial for Pakistan, which is under an IMF programme. The IMF recently injected USD 1 billion, raising the central bank’s reserves to USD 11.4 billion. After the anticipated Chinese refinancing, reserves may touch USD 12.7 billion but are expected to dip again from mid-June.
The IMF programme mandates Pakistan to raise reserves to nearly USD 14 billion by the end of the fiscal year. Additionally, a USD 300 million Bank of China loan maturing next month is expected to be refinanced in RMB.
China’s broader strategy: Dollar decoupling
The move to shift away from the US dollar is not exclusive to Pakistan. “The move to delink loans from the US dollar is not Pakistan specific rather it is part of the overall Chinese policy to decouple its economy from the US currency,” said the sources.
Currently, Pakistan relies heavily on China to remain solvent, with ongoing rollovers of USD 4 billion in cash deposits, USD 5.4 billion in commercial loans, and USD 4.3 billion in trade financing.
IMF outlook on Pakistan’s external financing
The IMF’s latest report noted that Pakistan’s total foreign commercial loans stood at USD 6.2 billion as of December 2024, with Chinese commercial loans making up USD 5.4 billion.
The IMF also highlighted limited access to external commercial financing in the near term, though a small “Panda” bond issuance is expected in the next fiscal year. A gradual return to Eurobond and global Sukuk markets is projected from FY 2027, signalling potential policy credibility restoration.
Ministry remains silent
Ministry of Finance spokesman Qumar Abbasi declined to comment when asked to confirm whether China had agreed to refinance the USD 1.3 billion ICBC loan and the USD 2.1 billion syndicated loan. He also did not respond to queries on the currency in which these loans would be refinanced.
Currency stability persists despite minor volatility
Despite slight depreciation in recent days, the rupee-dollar exchange rate has largely held stable during the current fiscal year. The exchange rate stood at Rs 282.2 per dollar on Tuesday.
With PTI inputs
Get daily updates from Mathrubhumi.com
Disclaimer: Kindly avoid objectionable, derogatory, unlawful and lewd comments, while responding to reports. Such comments are punishable under cyber laws. Please keep away from personal attacks. The opinions expressed here are the personal opinions of readers and not that of Mathrubhumi.
