Pakistan’s Request for Expanded Loan Limits
To address a critical financing gap, Finance Minister Aurangzeb formally requested an expansion of the existing Currency Swap Agreement (CSA) limits from 30 billion to 40 billion yuan (approximately $5.7 billion). Pakistan had previously utilized the 30 billion yuan ($4.3 billion) facility from China, primarily for debt repayment and foreign exchange stability. With foreign currency reserves still under pressure, this additional support is seen as vital for meeting the country’s immediate obligations.
The Chinese trade finance facility has been instrumental in stabilizing our reserves, but an increase is essential to navigate ongoing challenges, said an official from Pakistan’s Ministry of Finance.
Background of Pakistan-China Currency Swap Agreement
The Pakistan-China Currency Swap Agreement (CSA), established in 2011, aimed to facilitate bilateral trade and short-term liquidity support. Initially set at 20 billion yuan, it was later extended to 30 billion yuan in 2021 for three years, allowing Pakistan to stabilize its foreign exchange reserves. Under the CSA, funds can be used for periods ranging from three months to one year, making it a flexible solution for Pakistan’s financial needs.
In November 2022, then-Finance Minister Ishaq Dar had similarly requested an increase of 10 billion yuan, citing delays in loans from other creditors. The recent request by Aurangzeb reflects the persisting financial pressures, with the government seeking diversified sources to cover substantial debts.
Existing Debt, IMF Involvement, and Recent Developments
Pakistan’s current $4.3 billion facility with China is part of the foreign reserves held by the State Bank of Pakistan (SBP), which stand at approximately $11 billion, still lower than the nation’s debt commitments. To bridge the financing gap, Pakistan has accepted a $600 million commercial loan with an 11% interest rate, a decision that prompted the IMF to distance itself, clarifying it was not mandated for Pakistan’s $7 billion bailout package. Minister Aurangzeb acknowledged this loan’s high cost, stressing the need for swift financing solutions.
Strengthening the Bilateral Partnership and Future Initiatives
During the discussions, both sides reaffirmed their “all-weather strategic cooperative partnership.” The finance minister expressed gratitude for China’s sustained support and shared Pakistan’s aspirations to learn from China’s economic reforms. Aurangzeb also announced plans for Pakistan to issue its first Panda bond in the Chinese market, aiming to diversify funding sources further. Security measures for Chinese workers in Pakistan were also discussed, with assurances of their safety in ongoing projects across Pakistan.
With Pakistan relying heavily on Chinese loans to maintain economic stability, the $1.4 billion request highlights the ongoing need for foreign financing in sustaining the nation’s economic resilience and growth ambitions.
