China is working on a request by Pakistan to roll over a $2-billion loan that matured last week, a top finance ministry official told Reuters.
The South Asian country needs to roll over its debt because its foreign currency reserves are now only enough to cover four weeks’ worth of imports and it is currently in bailout negotiations with the International Monetary Fund (IMF).
Under the condition of anonymity, the official text on Wednesday, “It is a work in progress.” “Formal documentation is underway.”
IMF’s ingenious approach the only hurdle to bailout
A formal announcement will be made, the source added but gave no further details. The loan matured on March 23.
Beijing, Pakistan’s longtime ally, has been its only source of assistance as it battles to avoid defaulting on its obligations.
Pakistan needs the IMF funding to open up other foreign financing options, and the two parties have been in talks since early February to reopen $1.1 billion in funding that has been on hold since November as part of the bailout agreement from 2019.
One of the lender’s last remaining conditions for the release of the tranche is securing an assurance on external financing to fund Pakistan’s balance of payments.
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As Pakistan suffers through one of its worst fiscal crises in history, development occurs. The South Asian nation has experienced a slew of problems, including a perceived default risk and downgrading by international rating agencies that represent the state of the economy while also having to deal with significant political unrest and frequent changes in key leadership.
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The revival of the IMF plan has been deemed essential for stabilising the economy, which has recently been severely affected by a dollar shortage, with reserves held by the central bank treading at critically low levels.
The IMF stated last week that before moving forward with Pakistan, it must make sure funding assurances are in place.
In a press conference on Friday, the IMF’s Director of Strategic Communications said that “timely financial assistance from external partners will be critical to support the authorities’ policy efforts and ensure the successful completion of the review with Pakistan.”
“The main objective is to make sure that there is enough funding to support the authorities. Once the few outstanding issues are resolved, a Staff Level Agreement (SLA) will come next, she said.