China is stepping in to help ease some of Pakistan’s financial pressure by agreeing to reschedule $1.8 billion in loans over the next two years. While that’s not the full $3.4 billion Pakistan asked for, it’s still a crucial boost as the country tries to meet targets under its IMF deal.
The loans being deferred include government concessional loans and preferential buyer credits from China’s Exim Bank—basically money lent on softer terms for development projects. But there’s a catch: China isn’t extending the break to a different category called “buyer’s credit,” which was also part of the original request.
The timing couldn’t be more critical. After repaying $2.1 billion in Chinese commercial debt last week, Pakistan’s foreign exchange reserves slipped under $10 billion. But with China expected to refinance $3.7 billion worth of loans soon, reserves are forecast to bounce back to nearly $14 billion—right in line with what Finance Minister Muhammad Aurangzeb predicted.
Interestingly, China also wants these loans converted from U.S. dollars to Chinese yuan, a move that fits its broader push for yuan in global trade. And it’s not the first time China has helped out this way—last year, it gave Pakistan a break on $2.43 billion in loans as well.
Pakistan’s financial juggling act is far from over, though. Nearly $20 billion in public debt is due next year, with around $13 billion in bilateral loans. The government says these will be rolled over with the help of international partners, including China.
Long story short: while the full relief wasn’t granted, China’s decision to reschedule even part of the debt is a welcome breather as Pakistan works to stay afloat.