Beijing has agreed to roll over a $2 billion loan to Pakistan as the South Asian country faces a liquidity crunch after a brief phase of increasing forex reserves.
Pakistan Finance Minister Ishaq Dar told the National Assembly on Friday that the Chinese loan, which matured last week, was rolled over on 23 March.
The Chinese debt relief comes against the backdrop of Pakistan’s forex reserves dropping by $351 million to $4.24 billion in the week ending on 24 March, as per data published by the State Bank of Pakistan (SBP) on Thursday.
The reserves are the lowest in six weeks and may suffice to sustain only four weeks of imports, per estimates.
The State Bank said the reserves have been dwindling due to external debt repayments.
Stalemate With IMF
The cash-strapped economy has been involved in protracted negotiations with the International Monetary Fund (IMF) for a $1.1 billion tranche, which is part of a larger $6.5 billion loan facility signed in 2019.
According to Pakistan media reports, the western lender has asked Islamabad to service its debt repayments to the tune of $6 billion before approving Islamabad’s request.
Islamabad has expressed hope of tiding over the current liquidity crunch by aid and financing commitments from the “friendly countries” in the Middle-East, which include Saudi Arabia, the United Arab Emirates (UAE), and Qatar.
Meanwhile, Pakistan’s Minister of State for Finance Ayesha Ghaus Pasha has told a parliamentary committee that the IMF has “lost trust” in Pakistan.
Like many low and middle-income countries, Pakistan faced a severe crunch of foreign reserves amid rising food and fuel prices due to the spillover effects of the crisis in Ukraine.
The spillover effects affected the country's post-COVID economic recovery. The situation was further exacerbated by the catastrophic floods that affected millions and inundated large parts of the country.