Pakistan’s economy has been grappling with a severe Balance of Payments crisis, with foreign exchange reserves barely covering two months’ worth of import bills. In a significant move, China has granted Pakistan a two-year rollover on a USD 2.4-billion loan, providing crucial support to overcome its worst economic crisis.
China Extends $2.4 Billion Loan
China’s decision to extend a $2.4 billion loan to Pakistan for a period of two years comes as a lifeline for the country’s struggling economy. The loan rollover bolsters Pakistan’s fragile foreign exchange reserves, which were previously insufficient to cover imports for even a few months.
Interest-Only Payments
Pakistani Finance Minister Ishaq Dar announces that the Chinese EXIM Bank has rolled over the principal amounts of the loan due in 2024 and 2025. As a result, Pakistan is now only required to make interest payments during this two-year period. This measure provides a much-needed breathing space for the country to stabilize its economy.
Concerns of a “Debt Trap”
Despite the short-term relief, some analysts in Pakistan express concerns about falling into a “debt trap” due to the growing number of Chinese loans. They worry that heavy reliance on Chinese financial assistance might lead to long-term economic dependencies.
IMF Bailout and Foreign Exchange Reserves
The IMF deposits a long-awaited $1.2 billion bailout installment in Pakistan’s central bank. This infusion of funds helps bolster foreign exchange reserves and averts the imminent risk of default. IMF loans were on hold since December due to non-compliance with terms from a previous $6 billion bailout, forcing Pakistan to seek financial assistance from friendly countries like China, Saudi Arabia, and the United Arab Emirates.
China-Pakistan Economic Corridor (CPEC)
China’s investment in the China-Pakistan Economic Corridor (CPEC) plays a pivotal role in Pakistan’s economic stability. The CPEC encompasses a vast package of mega projects, including road construction, power plants, and agriculture. This infrastructure development initiative has the potential to boost Pakistan’s economic growth in the long term.
Prime Minister’s Assurance
Prime Minister Shehbaz Sharif asserts that Pakistan no longer faces the risk of default since assuming power in April 2022. He attributes the economic downturn to alleged corruption under former Prime Minister Imran Khan’s administration. This statement reflects the government’s determination to restore economic stability and regain investor confidence.
Strengthening Bilateral Ties
China’s role as a longstanding friend of Pakistan has been crucial in helping the country avoid default. China’s unwavering support in times of economic crisis has solidified bilateral ties and strengthened economic cooperation between the two nations.