A Chinese bank has assured Pakistan that it will provide a $500 million refinance credit within the next few days, raising the overall amount of commercial loans to $1.7 billion out of the total amount committed of $2 billion.
Before discussing a staff-level agreement with the International Monetary Fund (IMF), the Pakistani government desperately strives to gain full confirmation from donor states and multilateral creditors.
Pakistan needed to secure a rollover on deposits from China and refinance commercial loans from the IMF during the program duration, which is scheduled to finish in June 2023.
On Wednesday, a senior member of the Finance Division revealed that “another $500 million commercial loan is forthcoming from a Chinese bank” and guaranteed that the transaction would be finalized soon.
Beijing has pledged to refinance an additional $500 million in loans in the coming days, in addition to the $1.22 billion in commercial loans that Chinese banks have refinanced in the past few weeks.
It is vital to note that Pakistan had also requested permission to roll over the Chinese SAFE deposit of $2 billion this month.
Before the IMF and Pakistani side can move further with a staff-level agreement’s signature, refinancing company loans and rollovers of SAFE deposits are necessary.
Pakistani officials are currently eagerly expecting approval from Saudi Arabia, the United Arab Emirates, and Qatar, as well as the World Bank and the Asian Infrastructure Investment Bank, to meet the $6 billion in external finance needs through the end of June 2023.
After completing the seventh and eighth reviews under the $6.5 billion Extended Fund Facility, it will be difficult for the State Bank of Pakistan to increase its foreign exchange reserves to $8 to $10 billion by the end of June 2023, even though the staff had projected them to be $16 billion in August 2022. For this reason, the guarantees for getting external money are vital for the program’s survival.
With no external shocks to Pakistan’s economy, it will be extremely difficult for IMF personnel to defend a 50% fall in the SBP’s foreign exchange reserves.
But, according to Pakistani authorities, the flash floods impacted a large portion of the country, costing the economy $30 billion.
Positive news for Pakistan’s economy is that Brent crude is currently priced at $74.39 per barrel, and WTI crude is currently trading at $68.09 per barrel.
