Pakistan requests China to reschedule $3.4 billion debt

Islamabad: Pakistan has requested China to reschedule $3.4 billion debt for two years to bridge a foreign funding gap identified by the International Monetary Fund, according to a media report on Saturday.

This is the second time in the past five months that Islamabad has requested Beijing to reschedule loans provided by its Exim bank.

Deputy Prime Minister Ishaq Dar made the formal request during this week's visit to Beijing, The Express Tribune newspaper reported, quoting government sources.

Pakistan requested the Export-Import (Exim) Bank of China to consider rearrangement of its loans due from October 2024 to September 2027, said the government officials.

A two-year extension was sought to repay the official and guaranteed debt obtained from the Exim Bank. Pakistan would keep making interest payments.

Sources said that Pakistan was required to identify financing sources to fill the external financing gap of $5 billion for the three-year programme period.

They added the Chinese authorities were positive and that Beijing would hopefully accept the request to lessen Pakistan's external funding woes.

Earlier, in September last year, the Finance Minister wrote to the Exim Bank, requesting the rescheduling.

According to a joint China-Pakistan statement issued on Thursday, the Pakistani side reiterated its high appreciation for China's valuable support for its fiscal and financial stability. The statement was issued after President Asif Ali Zardari's state visit to Beijing.

The $3.4 billion debt was maturing between October 2024 and September 2027, which coincided with the three-year IMF programme period. According to the sources, the bank has given two types of loans, direct lending and guaranteed lending to State-Owned Enterprises (SOEs).

The rescheduling is said to be critical for Pakistan and is part of the overall $5 billion external financing plan that Islamabad has to implement to bridge the gap identified by the IMF at the time of the bailout package's signing in September last year.

From October 2024 to September 2025, the $505 million Exim direct loans to the government would mature, the period that will cover the first two reviews of the IMF programme.

Then, from October 2025 to September 2027, another $1.7 billion worth of direct loans to the government would mature. This brings total direct lending that requires a two-year extension to $2.2 billion.

China's $1.2 billion loans to SOEs are also maturing from October 2024 to September 2027, and the majority of those are maturing in October this year.

If Pakistan does not repay the $3.4 billion debt, its external financing gap will be reduced by the same amount. This week, the government also secured a $1.2 billion Saudi oil facility and took a $300 million loan through United Bank Limited to bridge the overall financing gap.

Pakistani authorities have already held at least a couple of meetings on the issue of $3.4 billion debt restructuring and exchanged the data with the Exim bank.

Pakistan is heavily dependent on China to remain afloat, with Beijing constantly rolling over the $4 billion cash deposits, $6.5 billion worth of commercial loans and $4.3 billion trade financing facility.

Meanwhile, Fitch Ratings, one of the three global credit rating agencies, said on Friday that securing sufficient external financing remains a challenge for Pakistan, considering large maturities and lenders' existing exposures.

It added Pakistan budgeted about $6 billion of funding from multilateral institutions, including the IMF, for this fiscal year but about $4 billion of this will effectively refinance the existing debt.