Pakistan seeks rescheduling of China debt of $3.4b

Pakistan seeks rescheduling of China debt of $3.4b as Pakistan’s authorities are optimistic about support.

Pakistan has officially asked China to restructure $3.4 billion of its debt, including both official and state-guaranteed loans, with a proposed two-year extension on repayments during the International Monetary Fund (IMF) program period.

The debt rescheduling is necessary to bridge the $5 billion external financing gap identified by the IMF when it approved a $7 billion bailout in September. A significant portion of this debt is owed to China’s Export-Import (Exim) Bank, with about one-third tied to state-guaranteed loans.

Pakistani authorities are optimistic about China’s support but have not yet received formal confirmation regarding the approval of their rescheduling request.

This is Pakistan’s second debt rescheduling appeal to Exim Bank in the last 18 months. In July 2023, then Finance Minister Ishaq Dar announced a similar two-year rescheduling of $2.4 billion in Chinese loans, on which Pakistan has since only made interest payments.

The current request for $3.4 billion includes $750 million due this fiscal year, a key factor in meeting IMF conditions that the $7 billion program is fully funded and that Pakistan’s debt remains sustainable.

Out of the $5 billion financing gap identified, $2.5 billion pertains to this fiscal year. Although Pakistan assured the IMF of arrangements for this amount, some planned borrowings have faced delays.

An unscheduled IMF mission is expected to visit Pakistan on Monday to review the country’s economic progress, indicating potential concerns regarding Pakistan’s adherence to the terms of the program.

Additionally, Pakistan has requested a $1.4 billion loan and proposed raising the Currency Swap Agreement limit to 40 billion yuan ($5.7 billion), which would enhance liquidity.

Pakistan also sought to reschedule over $16 billion in energy-related debts with China, though no formal agreements or memorandums of understanding have been reached so far.