EconomyPakistan

PM Kakar Asks China to Defer $2 Billion Loan Repayment Amid Economic Woes

Pakistan has formally requested China to extend the maturity of a $2 billion loan that is due to be repaid by March 23, 2024, the finance ministry stated on Friday.

The request was made by Caretaker Prime Minister Anwaar-ul-Haq Kakar in a letter to his Chinese counterpart Li Qiang, in which he expressed gratitude to Beijing for its financial assistance during Pakistan’s economic crisis.

According to the sources, the Chinese government is likely to approve the request and rollover the loan for another year, as it has done in the past. The officials from both countries are in contact to finalize the details of the rollover.

The $2 billion loan was part of a $4 billion package that China provided to Pakistan in 2023 to help it meet its external debt obligations and stabilize its foreign exchange reserves. The other $2 billion was deposited by the United Arab Emirates (UAE), which also agreed to rollover the amount earlier this month.

Pakistan has been facing a severe balance of payments crisis since 2021 when it entered into a $6 billion bailout program with the International Monetary Fund (IMF).

The IMF resumed the program in November 2023, after Pakistan implemented some tough reforms, including raising electricity tariffs, increasing taxes, and devaluing the currency. The IMF also approved the release of $1.6 billion in pending loans, which Pakistan received in December 2023.

However, Pakistan still needs more funds to service its huge external debt, which stands at over $115 billion, or 45% of its gross domestic product (GDP). The country has to repay about $10 billion in 2024, including $3 billion to Saudi Arabia, which had earlier withdrawn its $6.2 billion financial support.

Pakistan has been relying on its close allies, China and the UAE, to ease its debt burden and avoid default. China has been Pakistan’s largest creditor and investor, especially under the China-Pakistan Economic Corridor (CPEC), a flagship project of the Belt and Road Initiative (BRI).

China has repeatedly assured Pakistan of its unwavering support and cooperation in various fields, including trade, energy, infrastructure, and defense. Chinese Foreign Minister Qin Gang visited Pakistan in May 2023 and reaffirmed Beijing’s commitment to the CPEC and the strategic partnership between the two countries.

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