China has granted Pakistan a one-year extension on the repayment of a $2 billion loan, providing much-needed financial relief, the Ministry of Finance confirmed on Saturday.
Initially due for repayment on March 24, the loan’s deadline has now been pushed back, offering some breathing room for Pakistan, which is grappling with economic difficulties, including strained foreign exchange reserves.
Approximately 92% of Pakistan’s external debt is owed to three main sources: multilateral and bilateral creditors, along with international bonds. China remains the largest bilateral creditor, given the total external debt and liabilities.
Simultaneously, Pakistan is negotiating a new loan tranche from the International Monetary Fund (IMF), with the IMF’s team currently in the country for discussions.
Last summer, Islamabad secured a $7 billion Extended Fund Facility (EFF) from the IMF to help address its economic crisis, with the program playing a crucial role in stabilizing the economy. The government remains optimistic that the country is on track for long-term recovery.
Finance Minister Muhammad Aurangzeb told Reuters that Pakistan is “well positioned” for the first review of its $7 billion IMF bailout program, having built trust with the IMF through the completion of a short-term nine-month program last year. Previous loan programs had faced delays or ended prematurely due to non-compliance with key conditions.
In addition, the government is in talks to secure a Rs1.25 trillion ($4.47 billion) loan from commercial banks to reduce its growing energy sector debt, with power minister and banking association officials confirming the ongoing negotiations.
Addressing unresolved debt in the energy sector is a critical priority under the $7 billion IMF bailout, which has been central to Pakistan’s efforts to recover from its economic crisis.
“The loan will be repaid over a period of 5 to 7 years,” Power Minister Awais Leghari told Reuters, noting that the term sheets are still to be finalized.
