Amid Pakistan's Currency Crisis, China Extends USD 2.3 Billion Loan

The finance minister had warned that Pakistan could be as crisis-hit as Sri Lanka if tough decisions were not taken.

China, on Wednesday, 22 June, agreed to extend a loan worth 15 billion yuan (USD 2.3 billion) to Pakistan in view of the latter's depreciating local currency and depleting foreign exchange reserves.

Pakistan signed a loan facility agreement with a Chinese consortium of banks to finalise the loan.

Pakistan Finance Minister Miftah Ismail took to Twitter to thank the Chinese government for "facilitating this transaction."

Ismail said the "inflow was expected within a couple of days."

The Chinese consortium of banks has today signed the RMB 15 billion (~$2.3 billion) loan facility agreement after it was signed by the Pakistani side yesterday. Inflow is expected within a couple of days. We thank the Chinese government for facilitating this transaction.

— Miftah Ismail (@MiftahIsmail) June 22, 2022

"Chinese consortium of banks has today (Wednesday) signed the RMB 15 billion (USD 2.3 billion) loan facility agreement after it was signed by the Pakistani side yesterday (Tuesday)," he said.

He had warned last week that Pakistan’s economy could be as crisis-hit as Sri Lanka’s, if tough decisions were not taken.

Foreign Minister Bilawal Bhutto Zardari joined Ismail in expressing his gratitude for the support.

"The people of Pakistan are grateful for the continued support of our all-weather friends," he said.

Why Does Pakistan Need This Loan?

The loan from China will enable Islamabad to make import payments while giving some support to the currency as well.

The Pakistani rupee has lost over 34 percent since the beginning of the outgoing fiscal year 2021-22.

After foreign exchange reserves held by the State Bank of Pakistan (SBP) fell below USD 9 billion, this agreement offers massive relief to economic policymakers.

The deal with China also came on a day when Pakistan reportedly reached an understanding with the International Monetary Fund (IMF) to restore the stalled USD 6 billion assistance package from the global lender.

It will also boost Pakistan's dwindling cash reserves which are at USD 8.99 billion, according to the central bank, Dawn reported.

The deal with the IMF is expected to bring financing from other international sources.

The revival of the deal will immediately provide access to USD 1 billion, which Pakistan badly needs to push its dwindling foreign exchange reserves.

(With inputs from Dawn and PTI.)