Pakistan’s finance minister announced on Thursday that China has extended a $2.4 billion loan for the cash-strapped Islamic nation by two years in an effort to assist the country in overcoming one of its most severe economic crises.
The most recent extension of loan maturities by Beijing bolstered Pakistan’s foreign exchange reserves, which are still insufficient to cover import costs for two months.
Ishaq Dar stated in a post on the X platform, formerly known as Twitter, that the Chinese EXIM Bank carried over for two years the “principal amounts” of the $2.4 billion loan that Islamabad was supposed to repay in 2024 and 2025.
China is a longstanding ally of Pakistan, and it played a crucial role in Pakistan’s avoidance of a default this year, although there was concern in Pakistan about how Islamabad would repay the increasing Chinese loans.
Some Pakistani analysts refer to it as a debt trap, despite the government’s denial of such claims. Two weeks ago, the International Monetary Fund deposited a much-anticipated first installment of $1.2 billion in Pakistan’s central bank as part of a bailout to assist Pakistan avoid default. It increased Pakistan’s foreign exchange reserves, which had recently shrunk to $4 billion, sparking concerns of a default.
Last week, Pakistan’s foreign exchange reserves increased to $14 billion.
Since December, the IMF loans have been on pause due to Pakistan’s failure to comply with the provisions of the previous $6 billion rescue. Pakistan was compelled to seek financial assistance from favorable nations such as China, Saudi Arabia, and the United Arab Emirates.
Pakistan has stated that China has provided it with $5 billion in loans in recent months to prevent a default.
In Pakistan, Beijing is funding the so-called China-Pakistan Economic Corridor, a massive initiative comprising a plethora of megaprojects including road construction, power facilities, and agriculture.
China has already invested billions of dollars in Pakistan, and this package is regarded as a reprieve for the country, which struggled to surmount its economic crisis until June, when Pakistan and the IMF agreed to a new $3 billion rescue.
Prime Minister Shehbaz Sharif announced on Wednesday that Pakistan no longer confronts the risk of default.
Since rising to office in April 2022, Sharif has attributed Pakistan’s economic decline to alleged corruption under former Prime Minister Imran Khan.
Sharif is likely to resign when the current parliament’s five-year tenure expires next month, paving the way for new parliamentary elections that will be overseen by an interim administration that will be imposed next month when the National Assembly is dissolved.