China Approves $700M Facility for Pakistan to Boost Forex Reserves

Pakistan received a significant boost to its foreign exchange reserves after the China Development Bank approved a $700 million loan facility.

Finance Minister Ishaq Dar announced the news on Twitter, stating that the loan is expected to be received by the State Bank of Pakistan this week.

The loan will help bolster Pakistan’s forex reserves, which have been under severe strain due to a balance of payment crisis.

Formalities completed and Board of China Development Bank has approved the facility of US $ 700 million for Pakistan. This amount is expected to be received this week by State Bank of Pakistan which will shore up its forex reserves!— Ishaq Dar (@MIshaqDar50) February 22, 2023

The news of the loan had been widely anticipated, with sources suggesting that the funds would be forthcoming.

The Pakistani government is also hopeful that it will be able to refinance all its matured loans from Chinese banks soon, including two more commercial loans worth $500 million and $800 million.

In total, Pakistan is hoping to refinance Chinese loans worth up to $2 billion by the end of February or the first week of March 2023.

Pakistan is currently in urgent need of additional external financing avenues to address its balance of payment crisis.

It needs to secure a $1 billion tranche under the $6.5 billion Extended Fund Facility from the International Monetary Fund (IMF).

The IMF has demanded that Pakistan secure additional external financing to meet its obligations, and has also called for the imposition of additional power surcharges and the hiking of the policy rate.

The loan from the China Development Bank is expected to help Pakistan address some of its pressing financial needs.

The country has been grappling with a balance of payment crisis due to a growing current account deficit, declining foreign exchange reserves, and a high debt burden.

Pakistan’s current account deficit widened to $11.4 billion in the first half of the current fiscal year, compared to $6.3 billion in the same period last year.

The loan from the China Development Bank is just one of several measures that Pakistan is taking to address its financial challenges.

The government has also implemented a range of austerity measures to reduce its fiscal deficit, including cuts in public spending and tax reforms.

Additionally, Pakistan is seeking to attract foreign investment to support its economic growth, and has launched several initiatives to encourage investment in key sectors such as energy and infrastructure.

Overall, the loan from the China Development Bank is a positive development for Pakistan, which is facing significant financial challenges.

The loan will help shore up the country’s forex reserves and provide some breathing room as it seeks to address its balance of payment crisis.

However, Pakistan still faces significant economic challenges, and will need to implement a range of measures to address its underlying fiscal imbalances and attract investment to support sustainable growth.

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