Loans to be in Chinese yuan to support forex stability; interest rate terms still under discussion; funds expected to strengthen foreign exchange reserves
ISLAMABAD:
China has assured Pakistan of refinancing $3.7 billion in commercial loans, all denominated in Chinese yuan, before the end of June. This includes $2.4 billion in loans maturing next month, a move aimed at maintaining Pakistan’s foreign exchange reserves above double-digit levels.
Unlike previous loans that sometimes involved foreign currencies, China has decided to extend loans solely in its own currency as part of a broader effort to reduce reliance on the US dollar. Government sources shared this information with The Express Tribune.
These assurances came during recent discussions focused on refinancing loans due between March and June 2025. Pakistan has already repaid $1.3 billion of a loan from the Industrial and Commercial Bank of China (ICBC) in installments between March and April this year, officials added.
Subject to some clarifications requested by ICBC, the bank is expected to renew the loan in Chinese yuan shortly. The original loan, provided two years ago, carried a floating interest rate roughly around 7.5%.
Pakistan’s foreign exchange reserves currently stand at about $11.4 billion following a $1 billion IMF injection this month. After the upcoming Chinese refinancing, reserves could rise to approximately $12.7 billion before likely declining again from mid-next month, sources noted.
A $2.1 billion (15 billion RMB) syndicated loan from three Chinese banks is also maturing in June. Pakistan plans to repay this at least three days before maturity to ensure funds are rolled over before the fiscal year closes. This loan will also be refinanced in RMB, the sources said.
The syndicate includes the China Development Bank (9 billion RMB), Bank of China (3 billion RMB), and ICBC (3 billion RMB). The loan extension period is three years, according to officials.
However, the interest rate terms remain unsettled. Chinese authorities have offered Pakistan two choices: a fixed interest rate or a floating rate not linked to the Shanghai Interbank Offered Rate (Shibor).
Timely refinancing of this loan is crucial for Pakistan to keep reserves in double digits by the end of June. Under the IMF program, Pakistan aims to boost reserves to nearly $14 billion during this fiscal year.
Additionally, a $300 million loan from the Bank of China also matures next month and will need refinancing in yuan to maintain critical reserve levels.
China’s push to shift loans away from the US dollar is part of its broader economic policy, not unique to Pakistan. Meanwhile, Pakistan continues to rely heavily on China, which has consistently rolled over $4 billion in cash deposits, $5.4 billion in commercial loans, and a $4.3 billion trade finance facility.
An IMF report released recently highlighted that Pakistan’s total foreign commercial loans stood at $6.2 billion as of December 2024, with $5.4 billion being Chinese commercial loans.
The rupee-dollar exchange rate has remained relatively stable this fiscal year, despite some recent depreciation, closing at Rs282.2 to the dollar on Tuesday.
When approached for comment, Finance Ministry spokesperson Qumar Abbasi did not provide an official statement on whether China had agreed to refinance the $1.3 billion ICBC loan repaid earlier this year or the $2.1 billion China Development Bank-led loan due in June.
The IMF report emphasized Pakistan has secured firm commitments for $1 billion in financing over the next year and that key bilateral partners remain committed to rolling over short-term liabilities during the program period.
However, the IMF also warned that external commercial financing access will remain limited during this period, with only a small “Panda” bond expected in the next fiscal year. The fund anticipates Pakistan’s gradual return to the Eurobond and global Sukuk markets by fiscal year 2027, contingent on restored policy credibility.
