China gives Pakistan $1.2 bn loan to stave off possible currency crisis

Islamabad: China has increased its economic pull in Pakistan over the past year, providing over $1.2 billion in loans to help the country stave off a possible currency crisis.

State-backed Chinese banks have come to Pakistan's rescue twice already  — a $900 million loan in 2016 and $300 million in 2017, Samaa TV quoted officials as saying.

China's financial help shows the risky and unstable stocks of Pakistan's foreign currency that have been depleted in recent months as imports have increased while exports and inbound remittances have fallen.

Representational image. Reuters

Representational image. Reuters

It also demonstrates Beijing and Islamabad's close partnership as relations between Pakistan and the US dipped.

Beijing's investment in Pakistan under the China-Pakistan Economic Corridor will reach $62 billion from $55 billion after China approved more projects in different sectors.

However, despite the expected benefits Pakistan will reap from the deal, CPEC infrastructure is poised to further deplete the foreign currency stocks, used to pay contractors and suppliers.

Figures from the State Bank of Pakistan revealed that the country's net reserves dropped to $17.1 billion in February from $18.9 billion in October 2016 and $25 billion several years ago.

According to the report, this has caused Pakistan to seek emergency loans from outside sources to pay off previous debts made in foreign currencies.

A brokerage house estimated that Pakistan is entitled to pay China up to $90 billion in three decades for the $50 billion worth of loan and investment portfolio Beijing rendered to the country.

"Average annual repayment of CPEC will be $3 billion. [However, in medium term] between fiscal year 2020-25, it will range between $2-$5.3 billion with average repayment of $3.7 billion," Saad Hashemy, an analyst from Topline Securities, said.

Updated Date: Apr 26, 2017 17:52 PM

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