China lends Pakistan further $700m to shore up forex reserves

China and Chinese commercial banks held about 30% of Pakistan's total external debt

Aman checks foreign currency rates displayed on a monitor at a money exchange market in Karachi. - AFP

By Reuters

Published: Wed 22 Feb 2023, 2:40 PM

Pakistan will this week receive a new $700 million loan from China to help shore up its foreign exchange reserves, the South Asian country's finance minister said on Wednesday.

The credit facility, extended through the state-owned China Development Bank, comes as Pakistan is thrashing out a deal with the International Monetary Fund (IMF) to unlock funds from a $6.5 billion bailout crucial to stave off economic collapse.

"This amount is expected to be received this week by State Bank of Pakistan which will shore up its forex reserves," Finance minister Ishaq Dar said on Twitter.

A finance ministry official said the loan was in addition to other facilities that China has already extended to Pakistan.

Pakistan is struggling with its worst economic crisis in decades and its foreign exchange reserves, at their lowest in 10 years, are only enough to pay for less than three weeks' worth of crucial imports. Meanwhile, fiscal adjustments demanded by the IMF are fuelling decades-high inflation.

China is already Pakistan's single largest creditor and the United States, historically a close ally, said this week it was concerned about this debt, and was talking to Islamabad about the "perils" of a closer relationship with Beijing.

China and Chinese commercial banks held about 30 per cent of Pakistan's total external debt of about $100 billion, according to an IMF report in September.

Much of that debt has come under the China-Pakistan Economic Corridor, part of Beijing's Belt and Road Initiative.