China grants Pakistan a 2-year rollover on twin debts of $1.2 billion

By Al Mayadeen English
Source: Agencies
29 Jul 2023 16:26

Prior to the IMF agreement, China gave Pakistan an extension of two years for a debt worth $2.4 billion in total, meaning that Pakistan "will make interest payments only.”

Laborers load sacks of lentils onto a donkey cart at a wholesale market in Karachi, Pakistan, Thursday, July 13, 2023. (AP)

Islamabad said on Thursday that China has given Pakistan a two-year extension on a $2.4 billion loan, providing the debt-ridden country some breathing room in its budget crisis.

Before a crucial $3 billion IMF bailout was approved earlier this month, under the condition of securing supplemental backing from friendly countries, Pakistan was on the verge of default due to spiraling inflation, declining dollar reserves, and heavy foreign debt.

China's EXIM Bank offered Pakistan an extension on twin debts, worth $2.4 billion, which were due in the fiscal years 2023/24 and 2024/25 explained Pakistani Finance Minister Ishaq Dar.

Dar clarified in a tweet that "Pakistan will make interest payments only.”

Similarly, before the IMF standby agreement was finalized, Saudi Arabia and the United Arab Emirates contributed, in total, $3 billion to Pakistan's foreign exchange reserves.

The compiled effort drove the state forex reserves back to $8.7 billion, which is considered a rebound after it had reached a low that inhibited imports, and the local industry was greatly affected.

After a protracted negative trend, the China rollover prompted the benchmark index of the Pakistan Stock Exchange to reach a 20-month high.

According to Sunny Kumar, a financial analyst at Topline Securities, the "full recovery of the economy is a long way ahead," however, "News of the Chinese loan rollover added to the post-IMF agreement sentiments."

Pakistan open to currency diversification in trade with Russia

Last month, Pakistan's Minister of Commerce, Syed Naveed Qamar, told Sputnik that Pakistan is open to using various currencies in its transactions with Russia.

This comes after Russian Energy Minister Nikolai Shulginov a week ago that Russia had begun supplying oil to Pakistan with payment in "friendly" currencies. The first batch of oil was paid in Chinese yuan, Pakistani Petroleum Minister Musadik Malik said at the time.

"Pakistan deals with a number of currencies depending on which market we are talking about, and what is the counterpart agreement on the other side, for example, the deal with Russia on oil is based in Chinese yuan, so any hard currency which is recognized in the world is used in any kind of trading in the world," Qamar said, noting that while Pakistan has historically traded in US dollars, it is now open to use a variety of other currencies.

When asked if Pakistan will resort to the use of the Chinese Yuan in future trade with Russia, the minister said: "This is an arrangement for one transaction that has taken place, so this is an option that we have, but it will not restrict us one way or the other."