China once again rolls over $2b loan

ISLAMABAD:

In a significant development, China has once again extended the deadline for the $2 billion loan owed by Pakistan by another year. The debt was originally set to mature on March 24.

Ministry of Finance officials confirmed the development to , stating that this extension will help Pakistan strengthen its foreign exchange reserves. The continued economic support from China, Pakistan’s long-standing friend, is crucial for the country’s economic stability and recovery, they added.

“China rolled over a $2 billion loan to Pakistan,” the adviser to the finance minister, Khurram Schehzad, also told Reuters in a text message on Saturday.

Pakistan is working to strengthen its finances after securing a $7 billion International Monetary Fund (IMF) bailout in September 2024. The first installment of the loan is currently under review, and if successful, Pakistan will receive an additional $1 billion.

Securing external financing has previously been a key condition for the IMF to approve bail-out deals for the cash-strapped nation. Pakistan needs to repay over $22 billion in external debt in fiscal year 2025, including nearly $13 billion in bilateral deposits, Fitch said.

China had rolled over the loan for one year in February last year on existing terms after initially seeking a hike in price. China has been a key economic partner for Pakistan, providing financial assistance and investments, particularly under the China-Pakistan Economic Corridor (CPEC) initiative.

The extension comes as Pakistan continues to navigate economic challenges, including a balance of payments crisis and ongoing talks with international lenders to secure further financial assistance.

Officials said the loan deferment will ease immediate repayment pressures as the government focuses on stabilizing the economy. Earlier this week, Pakistan and the IMF officially initiated discussions for the first review of the $7 billion Extended Fund Facility (EFF) secured last year.

According to the Ministry of Finance, the IMF delegation, led by Nathan Porter, met with Finance Minister Muhammad Aurangzeb in Islamabad. The meeting focused on the overall economic situation in the country.

During the meeting, Pakistan assured the global lender of its commitment to fiscal discipline and economic reforms as talks continue in Islamabad for the latest economic review.

Finance Minister Aurangzeb briefed the IMF delegation on the country’s macroeconomic situation, revenue collection, and progress on structural reforms. He reiterated that Pakistan remains committed to meeting the conditions of its $7 billion loan programme.

The successive governments have failed to tap non-debt creating inflows, which have exposed the country to various risks. The exports are growing at a pace that is not enough to finance the imports. The foreign direct investment remains dry and stagnant.

Rolling over a loan means extending the term of an existing loan instead of repaying it in full when it comes due. This is usually done by negotiating new terms with the lender—effectively refinancing the loan—so that the borrower can continue to use the funds while delaying full repayment.

WITH INPUT FROM REUTERS and NEWS DESK