Pakistan Requests China To Reschedule USD 3.4 Billion Debt

Islamabad: Pakistan has requested China to reschedule USD 3.4 billion debt for two years to bridge a foreign funding gap identified by the International Monetary Fund, per a media report on Saturday. It's the second time in the past five months that Islamabad has requested Beijing to reschedule loans provided by its Exim bank. Deputy Prime Minister Ishaq Dar made the formal request during this week's visit to Beijing, The Express Tribune newspaper reported, quoting government sources. Pakistan requested the Export-Import (Exim) Bank of China to consider rearrangement of its loans due from October 2024 to September 2027, said the government officials. A two-year extension was sought to repay the official and guaranteed debt obtained from the Exim Bank. Pakistan would keep making interest payments.

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Pakistan requests China for debt rescheduling.

Sources said that Pakistan was required to identify financing sources to fill the external financing gap of USD 5 billion for the three-year programme period. They added the Chinese authorities were positive and that Beijing would hopefully accept the request to lessen Pakistan's external funding woes. Earlier, in September last year, the Finance Minister wrote to the Exim Bank, requesting the rescheduling. According to a joint China-Pakistan statement issued on Thursday, the Pakistani side reiterated its high appreciation for China's valuable support for its fiscal and financial stability. The statement was issued after President Asif Ali Zardari's state visit to Beijing. The USD 3.4 billion debt was maturing between October 2024 and September 2027, which coincided with the three-year IMF programme period. 

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According to the sources, the bank has given two types of loans, direct lending and guaranteed lending, to State-Owned Enterprises (SOEs). The rescheduling is said to be critical for Pakistan and part of the overall USD 5 billion external financing plan that Islamabad has to implement to bridge the gap identified by the IMF at the time of the bailout package's signing in September last year. From October 2024 to September 2025, the USD 505 million Exim direct loans to the government would mature, the period covering the first two reviews of the IMF programme. Then, from October 2025 to September 2027, another USD 1.7 billion worth of direct loans to the government would mature, bringing total direct lending that requires a two-year extension to USD 2.2 billion. 

China's USD 1.2 billion loans to SOEs are also maturing from October 2024 to September 2027, and the majority of those are maturing in October this year. If Pakistan does not repay the USD 3.4 billion debt, its external financing gap will be reduced by the same amount. This week, the government also secured a USD 1.2 billion Saudi oil facility and took a USD 300 million loan through United Bank Limited to bridge the overall financing gap. Pakistani authorities have already held at least a couple of meetings on the issue of USD 3.4 billion debt restructuring and exchanged the data with the Exim bank. Pakistan is heavily dependent on China to remain afloat, with Beijing constantly rolling over the USD 4 billion cash deposits, USD 6.5 billion worth of commercial loans and USD 4.3 billion trade financing facility.

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Meanwhile, Fitch Ratings, one of the three global credit rating agencies, said on Friday that securing sufficient external financing remains a challenge for Pakistan, considering large maturities and lenders' existing exposures. It added Pakistan budgeted about USD 6 billion of funding from multilateral institutions, including the IMF, for this fiscal year, but about USD 4 billion of this will effectively refinance the existing debt.