China lends Pakistan further $700 million to shore up FX reserves

Islamabad: 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. “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. On Tuesday, finance secretary said Pakistan expects to conclude talks with the International Monetary Fund over a staff level agreement as soon as this week, in a crucial step towards unlocking funds to battle an economic crisis. An IMF mission spent more than a week in Islamabad earlier this month to discuss a policy framework to allow the release of more than $1 billion in funding from a stalled $6.5 billion bailout package, originally approved in 2019. However, the mission left without a conclusion. “The consultations with the IMF are in the final stages. We expect to conclude the consultations soon, even within the week,” Hamed Yaqoob Sheikh, the top official in the finance ministry, told Reuters. Commerce Minister Syed Naveed Qamar told Reuters during a visit to Washington that IMF approval was “almost there” after two remaining issues involving the country’s power sector had been resolved. He said his government was ready to implement required reforms. Qamar said the IMF programme would allow Pakistan to slowly nurse its economy back to health after the devastation of last year’s flooding, adding his belief that the world commmunity should help Pakistan cope with the impact of climate change. ‘Not just a local issue’ “I hope the world also realises that a collapse of Pakistan’s economy would be a global phenomenon,” he said. “It’s not just a local issue for the Pakistani population.” The IMF’s local representative didn’t respond to a Reuters request for a comment. The staff level agreement would need approval from the IMF’s board before the funds can be released. The financing package has been held up since late last year over policy issues, with the IMF requesting a series of fiscal adjustments, including the removal of subsidies, jacking up fuel prices and raising more taxes to bridge a revenue shortfall. Pakistan has taken steps, such as raising more than 170 billion Pakistani rupees ($648 million) through a supplementary finance bill passed by the parliament on Monday. Other measures that still need to be taken to finalise the agreement include raising interest rates, which already stand at 17 per cent, as well as obtaining commitments for more bilateral and multilateral funding, officials say. The IMF funds are critical for the $350 billion South Asian economy, which is facing a severe balance of payments crisis. The fiscal adjustments demanded by the deal, however, are likely to fuel record high inflation, which hit 27.5 per cent year-on-year in January, analysts say. Read all the Latest News, Trending News,  Cricket News, Bollywood News, India News and Entertainment News here. Follow us on Facebook, Twitter and Instagram.