Tuesday, April 23, 2024

China to Bailout Pakistan After Saudi Arabia Refuses Rollover Request

China once again agreed to bail out Pakistan by promising to provide Pakistan with $1.5 billion to repay the forthcoming $1 billion of Saudi Arabia’s $3 billion loan.

In May 2020, Pakistan had already repaid $1 billion of this loan, and China had stepped up to provide Pakistan with an equal amount of foreign currency to prevent the reserves of the central bank from collapsing.

Since the beginning of November, reports about Saudi Arabia not allowing a pause in the remaining repayment of loans have been circulating in the media. The government officials however, had continuously avoided or flatly dismissed the prospect of the KSA’s rejection. During a virtual press conference, Federal Minister of Industry and Development Hammad Azhar told Pakistan still had the rollover facility under the Extended Fund Facility (EFF) of the International Monetary Fund without specifying if this would indicate a pause permitted by Saudi Arabia.

Now, news reports have emerged that the Ministry of Finance and the Pakistan State Bank (SBP) are both scheduled to repay Saudi Arabia $1 billion today (Monday). The remaining $1 billion is expected to be repaid next month, out of the total $2 billion loan (January 2021).

Saudi Arabia provided Pakistan with $6.2 billion worth of a three-year financial plan, $3 billion in cash assistance and $3.2 billion in deferred oil and gas payments. For one year the original arrangement provided the cash facility with an additional option to rollover the three-year charge.

Saudi Arabia however, demanded back the repayment even ahead of the initial repayment timetable instead of any rollover. It has also suspended the oil plant.

China has not issued a commercial loan for this current repayment, and the amount offered does not come from its State Foreign Exchange Administration (SAFE deposits) either. Rather this trade came as an expansion of an additional 10 billion Chinese Yuan ($1.5 billion) to the 2011 bilateral Currency-Swap Agreement (CSA), the newspaper reported.

This ensures that in Pakistan’s balance of payments, this $1.5 billion figure will not be added to the external debts. For almost a decade now, Pakistan has used CSA to sustain its foreign currency reserves as well as repay foreign debt.

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