Ahmed Mukhtar Naqshbandi
ISLAMABAD: Pakistan has gotton assurances of a $13 billion financial package from China and Saudi Arabia, including $5.7 billion in fresh loans, Finance Minister Ishaq Dar said on Friday in a statement that would help stabilise the reserves and the rupee.
The $13 billion package covers 38% of Pakistan’s projected gross external financing needs for the fiscal year 2022–2023. Since the International Monetary Fund (IMF) has imposed numerous stringent requirements without producing a sizable financial package, its realisation can eliminate the risk of default.
A day after his return from Beijing, Dar told journalists that Pakistan had asked China for a new loan of $1.5 billion and a debt rollover of $7.3 billion, which the Chinese premier had promised to cover. The total amount of loans Pakistan has requested from China is $8.8 billion.
Dar claimed that he also requested a new loan from Saudi Arabia for $4.2 billion. The Saudi finance minister also gave “a positive nod,” the speaker continued. Chinese and Saudi financial assistance would cover 38% of Pakistan’s estimated gross external financing needs.
It is anticipated that the injection will recover the rupee’s lost value. Dar asserted that the real inflation-adjusted value of the rupee was less than Rs200 to the dollar to see a stronger value of the local currency without any injection.
The finance minister responded that the IMF had not yet decided on the dates for the staff-level talks in response to a question. He did anticipate that the visit would happen this month, though. Shehbaz’s first trip to China as prime minister ended with the minister arriving back from Beijing. Shehbaz met with Li Keqiang, the premier, and Xi Jinping, the president of China.
Dar hailed the trip as a huge success that helped the China-Pakistan Economic Corridor get back on track (CPEC). He claimed that during his meetings with the Chinese premier, he was asked to provide a new loan of $1.5 billion through a currency swap.
The minister stated, “I requested China to raise the limit of the trade facility from 30 billion Yuan to 40 billion Yuan. The facility currently worth $30 billion is equivalent to $4.5 billion, and after an increase, it would be worth $6 billion.
According to the State Bank of Pakistan, Pakistan paid over Rs26 billion in interest costs to China in the fiscal year 2021 for using a $4.5 billion Chinese trade finance facility to pay off maturing debt.
Pakistan used the Chinese trade finance facility to pay off foreign debt and maintain comfortable levels of gross foreign currency reserves.
The SBP currently has $8.9 billion in gross official foreign exchange reserves, which includes the $4.5 billion facility. The $8.9 billion in reserves also include $4 billion in SAFE deposits that China has extended.
The central bank’s foreign exchange reserves are only $400 million after these loans are taken into account.
This arrangement prevented the additional $1.5 billion Chinese loan from appearing on federal government books and from being counted toward Pakistan’s external public debt.
Dar reported that as part of its overall plan to secure $34 billion in the current fiscal year, Pakistan also asked China to refinance its $7.3 billion debt that was due to mature in the following eight months.
The trade facility, initially intended to encourage bilateral trade in the participants’ home currencies, has been applied to repay foreign debt.
“The $3.3 billion Chinese commercial loans and $4 billion worth SAFE deposits loans were maturing from now till June next year and we have sought rollover,” said Dar. For more than a year, the government pushed for the rollover of the $4 billion SAFE deposit.
According to sources who spoke to The Express Tribune, President Xi promised Shehbaz that China would uphold all commitments made to the IMF on Pakistan’s behalf. China, Saudi Arabia, and the United Arab Emirates (UAE) had given the IMF their word that they would continue to have financial exposure to Pakistan at the start of the IMF programme.
Dar added that the Bank of China refinanced the $200 million loan that was due to mature earlier this week.
Dar responded that he had proposed that the prior obligations be treated as debt stock and that Pakistan would pay off all future liabilities when asked about clearing outstanding Chinese dues on account of payments made to the Chinese Independent Power Producers (IPPs) for the cost of the electricity purchase.
Dar stated that he requested doubling the current $3 billion Saudi cash deposit to $6 billion during his visit to Saudi Arabia last week, implying a $3 billion new loan. The minister claimed that he also pushed for a $2.4 billion increase in the oil financing facility. The total amount of Saudi financial support will be $4.2 billion.
