Pakistan, China sign $2.3b loan facility agreement

Pakistan on Wednesday signed a loan facility agreement with a Chinese consortium of banks for RMB 15 billion ($2.3 billion). This is expected to aid the depleting foreign exchange reserves and depreciation of local currency.

A loan facility agreement is a contract between a borrower and a lender. The agreement sets out the terms and conditions of the agreement.

Finance Minister Miftah Ismail announced the development on his Twitter handle, revealing that the inflows are expected within a couple of days. He said, “We thank the Chinese government for facilitating this transaction.”

https://twitter.com/MiftahIsmail/status/1539573937897717764

The agreement with Chinese banks is expected to significantly increase the country's reserves, enabling it to make import payments and lending some support to the rupee. This is a much-needed relief for economic policymakers after foreign exchange reserves held by the State Bank of Pakistan (SBP) fell below $9 billion as of June 10, with the level staying at less than six weeks of import cover.

The news comes as a relief to the country, which was already facing an uncertain economic situation. Pakistan has been engaged in talks with the International Monetary Fund (IMF) over the revival of a stalled Extended Fund Facility, and this agreement will help to improve the country's budget for the fiscal year 2022-23. This will allow Pakistan to revise its revenue target upwards and reduce expenditure, so that it can achieve a surplus in the next fiscal year.

The IMF and Pakistan are currently in discussion regarding the budget for the next fiscal year. According to Resident Representative to Pakistan Esther Perez Ruiz, progress has been made.

Earlier, this month Miftah had announced that Chinese banks have agreed to refinance Pakistan with $2.3 billion worth of funds which will "shore up Pakistan's foreign exchange reserves."

https://twitter.com/MiftahIsmail/status/1532345648137531393

Taking to his Twitter handle, Miftah wrote: "Good news. The terms and conditions for refinancing of RMB 15 billion deposit by Chinese banks (about $2.3 billion) have been agreed."