Pakistan has asked China to reschedule $3.4 billion in debt to ease financial pressure before an upcoming review by the International Monetary Fund (IMF). Deputy Prime Minister Ishaq Dar made the request during his recent visit to Beijing. Government officials say Chinese authorities responded positively, and Pakistan is hopeful that Beijing will approve the request.
Debt Rescheduling Part of $5 Billion External Financing Plan
Pakistan has approached the Export-Import (Exim) Bank of China to restructure loan payments due between October 2024 and September 2027. The IMF has identified a $5 billion external financing gap that Pakistan must fill. Rescheduling the Chinese debt will be critical to meeting these requirements.
This is the second time in five months that Pakistan has sought an extension on these loans. In September 2024, the finance minister had written to Exim Bank with the same request. A joint statement released during President Asif Ali Zardari’s visit to China expressed Pakistan’s appreciation for Beijing’s financial support.
Breakdown of Chinese Debt Maturities
The $3.4 billion debt includes two types of loans: direct lending and guaranteed loans to state-owned enterprises (SOEs). From October 2024 to September 2025, Pakistan must repay $505 million in direct loans. Another $1.7 billion in direct lending will mature between October 2025 and September 2027.
Additionally, Chinese loans of $1.2 billion to SOEs will come due within the same period. Most of these payments start in October 2024. The government seeks a two-year extension but will continue making interest payments on the debt.
Previous Loan Rollovers and New Financial Commitments
In July 2023, China rescheduled 31 loans worth $2.43 billion for two years. Ishaq Dar, then finance minister, announced that Pakistan would only pay interest on the rescheduled loans. If China grants the new request, Pakistan’s external financing gap will reduce by $3.4 billion.
Pakistan recently secured a $1.2 billion Saudi oil facility and took a $300 million loan from United Bank Limited to help cover its financing gap. Authorities have held multiple meetings with Exim Bank, exchanging financial data and discussing repayment options.
Upcoming IMF Review and Economic Challenges
The first formal review of Pakistan’s $7 billion IMF program begins in early March. If successful, it will lead to the release of over $1 billion in the next loan tranche. However, Pakistan remains heavily dependent on China for financial support.
Beijing has consistently rolled over $4 billion in cash deposits, $6.5 billion in commercial loans, and a $4.3 billion trade financing facility. Fitch Ratings warned that Pakistan still faces difficulties securing external financing. The country budgeted $6 billion in multilateral funding this year, but $4 billion will go toward refinancing existing debt.
Pakistan Seeks Additional $1.4 Billion from China
Finance Minister Muhammad Aurangzeb also requested a new $1.4 billion loan during a meeting with China’s vice finance minister in Washington. Pakistan wants to increase its limit under the Currency Swap Agreement from CNY 30 billion ($4.3 billion) to CNY 40 billion ($5.7 billion).
It remains unclear if China will approve this additional request. Fitch Ratings noted that Pakistan is making progress in stabilizing its economy and increasing foreign reserves. However, long-term economic stability depends on structural reforms and continued financial support from international lenders.
Pakistan’s External Debt Situation
Pakistan’s foreign exchange reserves remain low compared to its financial needs. The country must repay over $22 billion in public external debt this fiscal year. This includes nearly $13 billion in bilateral deposits.
Saudi Arabia and the UAE have already rolled over a combined $5 billion in deposits. Other bilateral partners have promised to support Pakistan through the IMF program. Fitch predicts that foreign reserves will outperform IMF targets but warns that external financing remains a major challenge.
Related Stories:
China, Pakistan Agree To Expand Multibillion-Dollar Project, Bolster International Cooperation
Pakistan and China Reaffirm Strong Partnership for Mutual Benefit
Pakistan and China Sign Multiple MoUs for Bilateral Cooperation in Diverse Fields
