— Beijing ends its wait for IMF nod, comes forward to save Pakistan from likely default
— Tranche to help stabilise forex reserves, avert imminent default on external debt
KARACHI: China, the second largest global economy, has released a loan tranche of $500 million to help Pakistan stabilise its foreign exchange reserves and avert an imminent default on foreign debt.
The friendly country has extended the tranche after Islamabad fulfilled almost all the tough conditions pre-requisite for revival of the IMF loan programme and the country is expected to achieve a staff-level agreement with the global lending institution next week.
Finance Minister Ishaq Dar on Friday said on his Twitter handle that the Chinese Industrial and Commercial Bank of China Ltd (ICBC) has completed all formalities and approved rollover of $1.3 billion facility that Pakistan repaid in recent months.
“[The] facility will be disbursed in three installments. First one of $500 million has been received by the SBP. It will increase forex reserves,” he said.
To recall, almost all the multilateral and bilateral creditors, including friendly countries, were still waiting for revival of the IMF loan programme to implement their financial commitments amounting to over $9 billion to help the flood-hit devastated nation.
However, Beijing ended its wait for the IMF nod and came forward to save Islamabad from a likely default.
Dar reiterated at a news conference on Friday that Pakistan would not default and continue to make foreign debt repayments on time.
Earlier this week, Moody’s Investors Service downgraded Pakistan’s credit rating to Caa3 from Caa1 on anticipation that the country would fail to acquire the required foreign funding on time and it might not avert the looming default.
Pakistan’s foreign exchange reserves continued to improve for the third consecutive week on Thursday.
They enhanced to almost six-week high at $3.8 billion after hitting a nine-year low at $2.9 billion three-weeks ago.
The available reserves barely provided import cover for less than a month, while it required almost $11 billion to finance the current account deficit and repay foreign debt (including the one expected to be rolled over) in the last four months (March-June) of the current fiscal year 2023, according to Moody’s.
State Bank of Pakistan (SBP) Governor Jameel Ahmad said on Thursday the forthcoming foreign debt repayments amounted to $2.9 billion only in the last four months of FY23, while the rest of the due repayment amounting to $4.3 billion would get rolled over in the ongoing fiscal year.
Ismail Iqbal Securities Head of Research Fahad Rauf said Pakistan might attract foreign investment in rupee-denominated sovereign debt securities like T-bills and Pakistan Investment Bonds (PIBs) after the central bank hiked its policy rate by 300 basis points to historical high at 20% and the rupee hit an all-time low on Thursday.
“The inflows of hot money would help in building up foreign exchange reserves and extend support to the rupee against the greenback in the near future,” Rauf added.
