With just a day remaining until the start of fiscal year (FY) 2025-26, China has reportedly rolled over a staggering $3.4 billion in debt to cash-strapped Pakistan. According to reports, two senior government officials have revealed details surrounding the rollover agreement that will boost Pakistan's foreign exchange reserves.

 

Under the condition of anonymity, officials reveal that Beijing has decided to refinance a whopping $1.3 billion in commercial loans. Moreover, details from reports indicate that China also rolled over $2.1 billion, which the State Bank of Pakistan (SBP) has held in its reserves for the past three years.

 

Pakistan has reportedly received additional funds, totalling $1.5 billion, from multilateral sources and commercial banks in the Middle East. Of the aforementioned amount, $500 million was received under multilateral financing agreements with $1 billion from Middle Eastern banks.

 

The federal government has not released an official statement on China rolling over Pakistan’s debt. However, the claims made by the officials, if true, spell great news for Pakistan as it will help the cash-strapped country meet a critical condition laid out by the International Monetary Fund (IMF).

 

The IMF had stipulated that Pakistan shore up its foreign reserves up to $14 billion by the end of FY 2024-25. Until last week, Pakistan was on track to meet this requirement. However, recent reports documented a large outflow of funds from the SBP’s reserves.

 

The SBP’s foreign exchange reserves took a staggering hit on June 27, falling by approximately $2.7 billion. As per reports, this caused SBP reserves to decline to a three-year low of $9.064 billion.

 

Analysts outlined how SBP reserves had fallen far short of the revised target of $14 billion for fiscal year (FY) 2024-25. According to data released by the SBP on June 26, the sharp drop occurred in the week ending June 20 and was primarily attributed to large external debt repayments.

 

However, the refinancing and rollover agreement with China has allowed the SBP to avoid failing to meet the IMF’s reserves criteria. While Pakistan managed to boost its reserves prior to China’s rollovers, without the last-minute external assistance, SBP reserves would sit at $12.664 billion at the close of FY 2024-25, $1.3 billion below the IMF’s target.