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China to Roll Over $2 Billion Debt for Pakistan Under Existing Conditions

© Photo : Government of Pakistan / Imran Khan Meets Xi Jinping in BeijingPM Imran Khan met President Xi Jinping in Beijing, Feb 6, 2022
PM Imran Khan met President Xi Jinping in Beijing, Feb 6, 2022  - Sputnik India, 1920, 28.02.2024
Pakistani Ministry of Finance has said that there is an understanding with Beijing to extend the repayment period for the $2 billion loan, which is set to mature on March 23, coinciding with Pakistan Day, as per Pakistani media.
After initially pushing for an increase in the price, China has now agreed to roll over a $2 billion debt for Pakistan under existing terms, reports Pakistani media.
This development comes as Pakistan's strategy to bolster foreign exchange reserves through deposits from various countries proves to be expensive, with a 118% surge in interest costs.
Sources indicate that China had initially proposed a further hike in interest rates on the $2 billion debt, with Pakistan currently paying a 7.1% interest rate based on the six-month Secured Overnight Finance Rate (SOFR) plus 1.715%.
Officials reported that China has informally conveyed its decision to extend the repayment period, and the finance ministry is currently awaiting a formal response.
Last month, Interim Prime Minister Anwaarul Haq Kakar requested the Chinese government to extend the maturing loans.
According to the State Bank of Pakistan (SBP) balance sheet, Pakistan paid Rs26.6 billion in interest during the last fiscal year to China, Saudi Arabia, and the United Arab Emirates (UAE) on the $9 billion deposits they had placed with the State Bank of Pakistan.
In the previous year, the country had paid Rs12.2 billion, marking a significant 118% increase within a year. Authorities attribute this substantial rise in interest costs to currency devaluation during the preceding fiscal year.
As of now, the central bank's gross official foreign exchange reserves are at $8 billion. Over the past decade, Pakistan has consistently pursued a policy of borrowing from regional countries during challenging economic periods.
It has failed to enhance its ability to repay, leading to the extension of these loans when they reach maturity.
Supporters of Pakistan's former Prime Minister Nawaz Sharif attend a welcoming rally for their leaders in Lahore, Pakistan, Saturday, Oct. 21, 2023. - Sputnik India, 1920, 12.01.2024
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