ISLAMABAD (PEN) : Pakistan has successfully repaid a $1 billion commercial loan to the Industrial and Commercial Bank of China (ICBC), marking a significant financial transaction that has temporarily reduced the nation’s foreign exchange reserves to a six-month low of $10.6 billion.
The loan repayment was completed in two equal tranches, with the first $500 million paid in early March and the second installment settled in the third week of the same month. This repayment comes amid ongoing efforts by the Pakistani government to maintain financial stability, despite significant challenges related to foreign debt and exchange rate pressures.
Short-Term Impact on Foreign Reserves
The repayment of the loan has had an immediate impact on Pakistan’s foreign reserves, reducing them to their lowest point in half a year. The central bank’s reserves were heavily affected, particularly after the settlement of the second tranche in March. However, the government remains hopeful that further refinancing options with ICBC will help stabilize the reserves in the coming months.
Additionally, another tranche of $300 million is due for repayment by mid-April, further straining Pakistan’s foreign currency reserves. Discussions are currently underway with ICBC regarding refinancing terms, but no conclusive agreements have been reached as of yet.
Debt Refinancing and Continued Dependence on China
Pakistan remains heavily reliant on China for financial assistance. The country is not only looking to refinance the current loan but is also negotiating with Chinese banks to roll over and refinance an additional $2.7 billion worth of commercial loans maturing between April and June. These loans are critical to maintaining Pakistan’s financial stability, as they will help prevent a further depletion of foreign exchange reserves.
In addition, Pakistan has made a request to China’s Export-Import (Exim) Bank to reschedule $3.4 billion in debt. The proposal seeks to extend the repayment period by two years, helping to bridge a foreign funding gap identified by the International Monetary Fund (IMF). The status of this request remains uncertain, with official statements yet to be released by Pakistan’s Ministry of Finance.
IMF Agreement and Financial Outlook
Despite the challenges, Pakistan has made progress in its negotiations with the IMF. The country and the IMF recently reached a staff-level agreement concerning the first review under Pakistan’s Extended Fund Facility (EFF). This agreement will pave the way for a disbursement of $1 billion, contingent upon approval by the IMF’s executive board. However, the timing of the approval remains unclear, with the board meeting expected to take place between May and June 2025.
While the IMF has acknowledged some improvements in Pakistan’s fiscal management, including stabilized external balances, it has also emphasized that the country’s vulnerabilities remain. The IMF has pointed out that Pakistan will need to implement tight fiscal policies, ensure exchange rate flexibility, and maintain a focus on managing inflation and external debt to safeguard its financial position.
Outlook for the Future
As Pakistan continues to navigate its financial difficulties, its dependency on foreign loans and refinancing options remains a key factor in its economic strategy. The country must also address its foreign financing gap, estimated at $5 billion, for the ongoing IMF program period.
In light of these challenges, Pakistan’s leadership is focusing on maintaining a delicate balance between fiscal discipline, securing external financial support, and managing its debt obligations.
