China 'rolls over' $2 billion loan to Pakistan amid 'difficult economic situation'

• Pakistan paid Rs26.6bn in last fiscal year in interest payment. 
• Move comes after PM Kakar requested China for rollover.
• Roll over to support Pakistan's depleting foreign reserves. 

ISLAMABAD: In a major development, China has rolled over a $2 billion debt to Pakistan, Ministry of Finance sources told Geo News on Wednesday.

Pakistan has borrowed $2 billion from China on a 7.1% interest rate, the sources said, adding that the loan was maturing in the week of March.

The sources said Pakistan paid Rs26.6 billion in the last fiscal year to China, Saudi Arabia, and the United Arab Emirates (UAE) on the $9 billion deposits that these three nations placed with the State Bank of Pakistan.

The rollover will support the State Bank of Pakistan (SBP) depleting foreign reserves which stand at $8 billion. 

Last month, caretaker Prime Minister Anwaar-ul-Haq Kakar wrote a letter to his Chinese counterpart Li Qiang, seeking the rollover of a $2 billion loan.

In his letter to China's premier, the interim prime minister has requested that Beijing roll over Pakistan's $2 billion loan for a year, sources had told Geo News.

PM Kakar, in his letter to the Chinese premier, also thanked the Chinese government for financial support, the finance ministry sources said.

The sources, citing the letter, stated: "China gave a loan to the government of Pakistan in a difficult economic situation."

A total of $4 billion worth of funds in loans, as per the sources, has been kept as a safe deposit, which has reduced Pakistan's external payments burden.

Last year in May, Beijing came to Pakistan's rescue during its struggle to secure the critical pending loan from the International Monetary Fund (IMF), as the Chinese government rolled over more than $2 billion in debt.

The friendly neighbour had committed to help Islamabad meet two crucial debt repayments in June worth $2.3 billion by providing fresh funds immediately after Pakistan was to make the payments.

"The refinancing of the commercial loans worth $1.3 billion and a Chinese government loan of $1 billion would help Pakistan avert immediate default," a senior government official told The News in May 2023.

Earlier last year, China had already rolled over some loans to Pakistan and Chinese Foreign Minister Qin Gang also reiterated Beijing’s financial support for the country on a visit to Pakistan back in May last year.