China has signalled a possible rollover of $1.8 billion in Pakistani debt for two years, which is about half the amount Islamabad initially requested. However, reports reveal that securing the rollovers could help the cash-strapped country stay on track with the International Monetary Fund (IMF) program.

 

According to reports, Pakistani officials had asked for an extension on multiple loans from the Export-Import (Exim) Bank of China. These loans include buyer credit, preferential buyer credit and concessional loans. However, Chinese authorities declined to include the buyer’s credit in the deal.

 

Reports now suggest that the concessional and preferential loans, amounting to a staggering $1.8 billion, could be officially rescheduled by the first month of fiscal year (FY) 2025-26. 

 

The aforementioned loans were reportedly taken for development projects and are separate from Pakistan’s commercial borrowing from Chinese lending institutions.

 

According to details, Islamabad aimed to delay repayments on Exim Bank loans due between October 2024 and September 2027. However, Beijing refused to include loans from the COVID period in rollover discussions.

 

China reportedly suggested that Pakistan focus on loans maturing between September 2025 and September 2027, a proposal the Finance Ministry declined. Additionally, China wants the rescheduled loans to be denominated in Chinese yuan instead of the dollar.

 

According to reports, Exim Bank also asked Pakistan to exclude buyer’s credit loans from the request to move the process forward. This condition resulted in the reduced amount now under consideration.

 

Pakistan initially wanted relief on a whopping $3.4 billion in debt from China to help fill the funding gap identified by the IMF. Reports reveal that the IMF had identified a $5 billion external financing shortfall over the $7 billion extended fund facility program's three-year span.

 

If China agrees to roll over the debt, it would be the second time the country has agreed to defer Pakistani debt within two years. Back in July 2023, former Finance Minister Ishaq Dar had announced the rescheduling of $2.43 billion worth of loans from the Exim Bank for another two-year term.

 

Pakistan’s foreign reserves recently dropped below $10 billion after paying off a $2.1 billion commercial loan to China last week. However, with China expected to refinance three loan packages totalling $3.7 billion, reserves are likely to bounce back to nearly $14 billion.

 

According to reports, Finance Minister Muhammad Aurangzeb has said reserves will cross $14 billion by the close of FY 2024-25. The IMF has assured that Pakistan’s reserves will stand at $13.9 billion by then.