KARACHI: China has agreed to reschedule Pakistan’s $1.8 billion concessional loans and preferential buyer credit to help meet the foreign financing requirements for the International Monetary Fund’s (IMF) ongoing programme.
The agreement marks a critical development after Pakistan initially requested the rescheduling of $3.4 billion in loans from the Export-Import (Exim) Bank of China. However, the two countries were unable to agree on rescheduling the buyer’s credit loans, and only $1.8 billion of the debt will be restructured.
The rescheduling is set to cover a two-year period, from July 2025 to June 2027, and will help Pakistan avoid the risk of default while maintaining economic stability.
Although Pakistan will continue to make interest payments on the rescheduled loans, the arrangement is seen as vital for supporting Pakistan’s foreign exchange reserves, which recently dropped below $10 billion after repaying a $2.1 billion loan to China.
The anticipated refinancing of Chinese loans is expected to boost the reserves to $14 billion by the end of June 2025.
Finance Minister Muhammad Aurangzeb had already announced that Pakistan’s reserves would close over $14 billion by the end of FY 2024-25. Additionally, the expected $1 billion loan from the Asian Development Bank and other refinancing options will further help restore the reserves.
Pakistan’s debt rescheduling deal with China excludes the buyer’s credit, which had been a point of contention in negotiations. The rescheduled loans, expected to total $1.8 billion, will be focused on government concessional loans and preferential buyer credits, which have been used for various projects in the country. The government had initially requested a two-year extension for repayment on loans falling due from October 2024 to September 2027.
The rescheduled loans are part of Pakistan’s broader strategy to meet IMF programme targets, as the IMF had identified a $5 billion external financing gap for the three-year programme period. China’s role has been vital in supporting Pakistan’s economic stability, especially in the face of ongoing negotiations with the IMF.
As the IMF continues to monitor Pakistan’s financial health, the country faces $20 billion in external debt repayments in the coming fiscal year, with nearly $13 billion in bilateral deposits expected to be rolled over by Pakistan’s partners, in line with commitments made to the IMF.
