ISLAMABAD:Pakistan has once again approached China with a request to defer $3.4 billion in debt payments for two years to address a foreign financing gap identified by the International Monetary Fund (IMF). The success of this request is expected to significantly ease external funding concerns ahead of upcoming IMF program review discussions.
Deputy Prime Minister Ishaq Dar formally made the request during his recent visit to Beijing, according to government sources. Officials indicated that Chinese authorities have responded positively, raising hopes that Beijing will accommodate Pakistan’s appeal to mitigate its financial difficulties.
Pakistan has specifically asked the Export-Import (Exim) Bank of China to consider restructuring loan payments due between October 2024 and September 2027. Government officials revealed that the country must secure financing sources to fill a $5 billion external funding gap over the three-year program period.
This is the second time in five months that Pakistan has sought relief on the $3.4 billion debt from China’s Exim Bank. A similar request was made in September last year when the finance minister formally asked for rescheduling.
A joint statement released on Thursday following President Asif Ali Zardari’s visit to China reiterated Pakistan’s deep appreciation for China’s continued financial support. The debt in question, which is maturing between October 2024 and September 2027, consists of both direct lending and guaranteed loans extended to Pakistan’s state-owned enterprises (SOEs).
Debt rescheduling is critical for Pakistan, as it forms part of the broader $5 billion external financing strategy required to bridge the funding shortfall outlined by the IMF at the time of the bailout package agreement in September 2023.
Under the proposed extension, Pakistan seeks to defer official and guaranteed debt repayments to China while continuing to make interest payments. Between October 2024 and September 2025, $505 million in direct loans to the government will mature, coinciding with the first two reviews of the IMF program. Between October 2025 and September 2027, another $1.7 billion in direct government loans will also mature, bringing the total direct lending for which Pakistan seeks an extension to $2.2 billion. Additionally, SOE-linked Chinese loans worth $1.2 billion will mature during this period, most of them coming due from October this year.
In July 2023, then-Finance Minister and now Deputy Prime Minister Ishaq Dar announced that China had rescheduled $2.43 billion in loans for two years. At the time, Pakistan continued to pay interest while deferring principal payments.
If the current $3.4 billion loan rescheduling request is approved, Pakistan’s external financing gap would be reduced accordingly. This week, Pakistan also secured a $1.2 billion Saudi oil facility and obtained a $300 million loan from United Bank Limited to bridge financing gaps.
Pakistani authorities have already held multiple meetings with Exim Bank officials regarding debt restructuring, exchanging relevant financial data to support their request.
The first formal review of Pakistan’s $7 billion IMF program is set to begin in early March. A successful review will pave the way for the disbursement of over $1 billion in the next loan tranche.
Pakistan remains heavily reliant on China for financial support, with Beijing consistently rolling over $4 billion in cash deposits, $6.5 billion in commercial loans, and $4.3 billion in trade financing facilities.
Fitch Ratings, a leading credit rating agency, noted that securing external financing remains a challenge for Pakistan due to large upcoming maturities and lenders’ cautious approach. Fitch estimated that Pakistan budgeted around $6 billion from multilateral lenders, including the IMF, for the current fiscal year, but $4 billion of that amount is allocated for debt refinancing.
Pakistan’s recent request for the $3.4 billion rescheduling comes in addition to a separate appeal for a $1.4 billion new loan. Finance Minister Muhammad Aurangzeb raised this request during discussions with China’s Vice Finance Minister in Washington. Pakistan has also requested an expansion of the Currency Swap Agreement (CSA) limit from CNY 30 billion ($4.3 billion) to CNY 40 billion ($5.7 billion).
It remains unclear whether China has accepted the additional $1.4 billion request.
Fitch stated that while Pakistan has made notable progress in stabilizing its economy and strengthening external buffers, the continuation of key structural reforms will be essential for upcoming IMF program reviews and securing financial support from bilateral and multilateral lenders.
The agency projected that foreign reserves are likely to exceed IMF program targets and Fitch’s earlier expectations. However, reserves remain insufficient compared to Pakistan’s financing needs. More than $22 billion in external public debt repayments are due this fiscal year, including nearly $13 billion in bilateral deposits. Fitch expressed confidence that bilateral partners would honor their commitments to roll over these loans. Saudi Arabia and the UAE have already rolled over $3 billion and $2 billion, respectively, in recent months.
The outcome of Pakistan’s debt rescheduling request to China will be crucial in determining the country’s financial trajectory and its ability to meet external obligations while sustaining economic recovery efforts.
