Reserves get boost as China refinances $1bn loan for Pakistan

• Talks underway with Bank of China for a loan of $300 million: Dar.
• "Pakistan will also receive dollars under China's swap agreement."
• With the latest addition, Pakistan's reserves go up to $10.4 billion.

In a major boost to the forex reserves, China announced refinancing $1 billion loan in Pakistan, the State Bank of Pakistan (SBP) confirmed late on Friday.

The news of the refinancing comes hours after Finance Minister Ishaq Dar informed the National Assembly's Standing Committee on Finance and Revenue that China would be refinancing the $1 billion loan it had given to Pakistan earlier.

“$1 billion will come from China today or on Monday,” Dar had told the lawmakers. He also said that talks are ongoing with the Bank of China for a loan of $300 million. He added that Pakistan would also receive dollars under China's swap agreement.

A day earlier, the central bank had shared that the country’s foreign exchange reserves — held by SBP and commercial banks — stood at $9.4 billion for the week ending on June 9.

According to the financial czar, the International Monetary Fund (MF) has set external financing as a pre-condition for Pakistan.

The development of the refinancing was reported by The News earlier this week. A report published in the paper stated that Pakistan has requested China to refinance commercial loans of $1.3 billion within the ongoing month but despite that, without the revival of the IMF programme, the foreign exchange reserves held by the SBP might drop to below $3 billion.

Cash-strapped Pakistan is working to revive its stalled IMF programme expiring this month as it faces a severe liquidity crunch.

However, Pakistan is seeing no signs of securing external financing any time soon amid political instability — which has had a huge impact on the deteriorating economy.

The $350 billion economy is in turmoil amid financial woes and the delay in an agreement with the IMF that would release much-needed funding crucial to avoid the risk of default.

The government has been in talks with the Washington-based lender since end-January to resume the $1.1 billion loan tranche that has been on hold since November, part of a $6.5 billion Extended Fund Facility (EFF) agreed upon in 2019.

The problem arises with the repayment of $900 million to multilateral creditors by the end of June 2023 in the shape of principal and markup repayments.