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Reuters
Reuters
Business
By Asif Shahzad and Ariba Shahid

China rolls over $2 billion loan to Pakistan as it struggles with external liquidity

Flags of Pakistan and China are seen at the entrance of the China Pavilion, during the International Defence Exhibition and Seminar "IDEAS 2022" in Karachi, Pakistan November 16, 2022. REUTERS/Akhtar Soomro

Pakistani Finance Minister Ishaq Dar said on Friday China had rolled over a $2 billion loan that matured last week, providing relief during the South Asian nation's acute balance of payment crisis.

Locking in a rollover had been critical for Pakistan, where reserves have dipped to just four weeks' worth of imports and talks over an International Monetary Fund bailout tranche of $1.1 billion have hit a stalemate.

"I am happy to confirm that this had been rolled over on March 23," Dar told parliament, referring to the maturity date. He said all concerned documentation had been completed.

Neither the government in Beijing nor the Chinese central bank responded to requests for comment on the rollover.

Dar's comments were the first official announcement of the rollover after the loan matured. Dar did not give the new maturity date or other terms of the arrangement.

A top finance ministry official told Reuters on Wednesday that a formal confirmation of the refinancing would be made after the process was completed.

One of the IMF's conditions for the release of the next tranche is assurance of external financing to fund Pakistan's balance of payments.

Longtime ally Beijing has provided the only help Islamabad has got so far, with refinancing of $1.8 billion credited last month to Pakistan's central bank.

In its monthly Economic Update and Outlook, the Finance Division of the government noted that Pakistan was currently confronted with shortage in external liquidity.

Islamabad has been negotiating with the IMF since early February for the release of $1.1 billion from a $6.5 billion bailout package agreed in 2019. To unlock the funding, the government has cut back on subsidies, removed an artificial cap on the exchange rate, added taxes and raised fuel prices.

"Through demand management policies, the government is trying to limit the current account deficit, which will not transfer further pressure on dwindling reserves," read the report.

It added that inflation, which is already running above 30%, a near 50-year high, is expected to stay elevated.

The report cited market frictions caused by relative demand and supply gaps of essential items, exchange rate depreciation, and the recent upward adjustment in prices of prices of fuel as reasons behind higher inflation expectations.

(Reporting by Asif Shahzad in Islamabad and Ariba Shahid in Karachi, PAKISTAN; Editing by Jason Neely, Frank Jack Daniel and Mark Heinrich)

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