China, the second largest global economy, on Friday eventually came forward to aid Pakistan in testing times, as it lent $700 million to Islamabad, supporting its foreign exchange reserves which improved apparently to a six-week high close to $4 billion.
Beijing has disbursed the loan, while the International Monetary Fund (IMF) is still on its way to resuming the $6.5 billion loan programme, reports The Express Tribune.
"Funds of $700 million received today by [the] State Bank of Pakistan from [the] China Development Bank," Finance Minister Ishaq Dar said on his Twitter handle.
The China Development Bank's board of directors completed formalities, approving the facility of $700 million for Pakistan earlier this week, the minister said on Wednesday. "This amount will shore up Pakistan’s forex reserves.”
In anticipation of receipt of the loan from the second largest global economy of China, the domestic currency recovered to a one-month high beyond Rs260 against the dollar in the interbank market on Friday.
The currency freshly recovered 0.36 per cent, or 94 paisas, to Rs259.99 against the greenback, according to the SBP.
To recall, Pakistan was managing a high risk of default on foreign debt repayments and its economy melted down in the wake of fast depletion in the country's foreign exchange reserves to a nine-year low at $2.92 billion in the week that ended on February 3, 2023.
Earlier, the reserves stood at $20 billion some 18 months ago in August 2021. The larger import payments and foreign debt repayments dried the reserves to below $3 billion amid the suspension of the IMF loan programme of $6.5 billion.
Previously, Pakistan had returned two loans totalling $1.2 billion to China in December 2022 and expected Beijing would quickly reissue the same financing back to Islamabad.
The expectation, however, did not come true amid the delay in the resumption of the IMF loan programme in December 2022.
China, however, finally decided to come forward to rescue Pakistan on Friday, while the IMF programme resumption is also around the corner, development suggests.
According to SBP's latest weekly update on Thursday, the country's foreign exchange reserves improved by $66 million in a week to a four-week high of $3.26 billion on February 17.
The reserves continued to improve for the second consecutive week. Cumulatively, they improved by $369 million in the past two weeks to $3.26 billion from a nine-year low of $2.92 billion on Feb 3.
Pakistan was estimated to repay around $8 billion in foreign debt in the second half (Jan-Jun) of the current fiscal year 2023, while a notable portion of the loan was expected to get a rollover.
High-ups, including Dar and SBP Governor Jameel Ahmed, said time and again that Pakistan would continue to repay its foreign debt on time, as they had arranged to finance the required in the current fiscal year 2023.
The low forex reserves had, however, agreed on economic managers to curb non-essential and luxury imports through administrative controls. The low imports, mostly of raw materials, resulted in the closing of factories partially or completely and rendered millions of people jobless in the country.
