ISLAMABAD:
Pakistan has decided to borrow $600 million from China to boost its dwindling foreign currency reserves that have depleted by $1.7 billion since expiry of the International Monetary Fund programme.
It is the second time in the last three years that the Pakistan Muslim League-Nawaz government has decided to ask a friendly country to boost its foreign currency reserves. Earlier, Saudi Arabia had gifted $1.5 billion to Pakistan in two equal tranches in 2014.
Pakistan’s debt pile soars to Rs22.5tr
The country’s top economic managers on Thursday held a meeting to thrash out details for the Chinese loan, finance ministry sources said. State Bank of Pakistan Governor Ashraf Wathra, Finance Minister Ishaq Dar and Finance Secretary Tariq Bajwa attended the meeting.
The Bank of China will provide the loan on commercial terms, the sources said. They said the amount will be disbursed this month. The loan is expected to be given for a period of three years at an interest rate ranging between 3.1% and 3.2%, said the sources.
The response of SBP spokesman Abid Qamar was awaited till the filing of the story. He had been requested to confirm whether Pakistan has already received $300 million out of $600 million from China.
With fresh borrowings, the Chinese contribution in Pakistan’s official foreign currency reserves held by the SBP would increase to $1.3 billion, as China Development Bank has already lent $700 million for balance of payment support during the current fiscal year. The China Development Bank has given the loan for a period of three years.
The $1.3 billion Chinese borrowings are part of $2 billion foreign commercial bank loans that Pakistan has budgeted for current fiscal year 2016-17. In addition to Chinese $1.3 billion borrowings, Pakistan also obtained $200 million from Noor Bank of United Arab Emirates. The foreign loans would support the reserves besides helping to meet the budget financing needs.
Will Pakistan forever be indebted to China for CPEC?
Sources said the cabinet has already approved a summary to obtain these loans from China. Last month Pakistan had returned $500 million that it had obtained from China about five years back for providing a cushion to the foreign currency reserves. The reason for returning $500 million loan was that there was a requirement of sending a formal request by prime minister of Pakistan to China to extend the $500 million loan after every year, said the sources.
In October 2016, Pakistan’s official foreign currency reserves stood at $18.925 billion, according to the central bank. During the week ending on February 3, the SBP’s reserves decreased to $17.218 billion, said the SBP on Thursday. There was a reduction of $376 million in one week alone, taking the total tally to $1.72 billion since the expiry of the IMF programme.
Pakistan has been struggling to maintain its official foreign currency reserves that it has built largely by obtaining expensive foreign loans during past three years. The government’s failure to enhance exports, attract foreign investment complicated the matters for it.
Growing China Pakistan Economic Corridor-related imports, decline in exports, absence of Coalition Support Fund, and slowdown in remittances, pushed the current account deficit to $3.6 billion in the first half of FY17, from $1.7 billion in the same period last year, according to latest Monetary Policy Statement of the SBP. It added this higher deficit was financed by an increase in bilateral and multilateral funding along with pick up in investment flows.
“Going forward, with the aforementioned risks to the external sector, the need of financial inflows would grow further,” the central bank cautioned.
During first half of this fiscal year, the federal government borrowed $4.1 billion from the foreign lenders. This includes $900 million foreign commercial bank borrowings and $1 billion raised by issuing Sukuk bonds. The relatively cheaper foreign financing from multilateral financial institutions has significantly slowed down for past many months.
Published in The Express Tribune, February 10th, 2017.
No free lunch with China as all loans from its iron brother is purely on commercial terms. Pakistan is to badly miss USA in coming years.
Kashkol.
It is a wonder Pakistanis do not see the obvious – an ever-growing, hopeless dependence on China that is going to seriously compromise the country’s sovereignty in the long run. It would be utter foolishness to believe that a road network built with Chinese loans, Chinese machines and Chinese labour is going to somehow magically save you from this mess you are getting into. Seriously.
Pathetic.while the so called leaders are busy with there corruption and public are suffering
As a citizen I am worried about the loans our govt are taking, since its fine if they utilize it honestly on decelopment but any room for corruption will be a disaster for our future and economy and If this happens the current govt will be 100٪ responsible for the losses and sufferings of its citizens who voted them as a leader.
Therefore, next elections must be taken seriously by every common man to vote wisely and Not absolutly saein people. Please. 🙂
What’s the point in building up reserves with borrowings?
The Chinese, our new masters.
What is happening ? Why do we need to keep on borrowing money like this ?
Why can’t we sustain ourselves ?!
A true friend indeed.
Congratulations,Pakistan on yet another loan. Let celebrate this by taking another.
No aid.
@VINEETH G:
As long as it harms India, it is seen as good.
@Atif:
To import from China.
Such news shouldn’t come, instead what we did with 600 million dollars. What we got etc. You can see countries have trillion of dollars loan but they never mention we got a 100 million dollar loan from xyz bank.
CPEC is also loan. It is not investment. Anyway congrats.
With over $ 17 billion in foreign reserves why is there a need to borrow and pay interest. Only when the reserves fall to just three months of imports can the situation be grave enough for further commercial borrowing.
This is National Treachery.
The architects of these loans must be tried for Treason and Theft against The State of Pakistan.
Pak cannot afford these loans, these loans are ENSLAVING Pak to China for generations to come. The majority of this $600 will end up in Sharif Panama Accounts and the poor people of Pak will have to repay over generations to come.
@Feroz:
You also need to repay previous loans in $s. Typical debt trap, take loans to pay previous loans
You need more structural reforms – people need to pay their tax – direct tax especially – income tax, corporation tax, Capital Gains etc. The State needs to become more efficient.
Dwindling reserves are the result of trade imbalance – largely with China. Trade deficits cost jobs and hard currency – small ones are tolerable but the trade deficit with China is enormous. Why not impose tariffs on Chinese products rather than ask for a loan?
Rapist and pedophiles don’t deserve any sympathy. Toss them in jail and remove their citizenship. Deduct the cost of their incarceration from financial aid that would otherwise be send to Pakistan. After they serve their jail sentences put them on the first airplane to Pakistan which hopefully will toss them in prison to protect their own women and children.
@onlooker:
not really…india is about to find out what US ‘friendship’ really means when modi is dancing in his sari on the table for DJ. hahahaha
@VINEETH G:
no compromise on sovereignty, the chinese need pakistan as much as pakistan needs china. as for CPEC, stop worrying about it, as the labor is also ours, the machinery is also ours, and the benefit will be to us. go drink some antacid now from all the clear heart burn you’re having.
Peanuts. Only $600M? Worth a headline or even asking for? Is this targeted to a particular project like the Orange line? Just boosting foreign exchange reserves – seems a bit paltry for that. No transparency.
@hamza khan:
The last time I checked Pakistan takes Chinese loans for CPEC, buys Chinese equipment with it for its construction, and awards contracts to Chinese companies which bring in Chinese labour. Good luck!
The picture above is more than a 1000 words… The fact that Chinese premier is standing while Pakistani PM walks to him depicts the 1-sided relationship… Pakistan needs China more than China needs Pakistan
@hamza khan:
You said “Chinese also need Pakistan as much as Pakistan needs China”. Sir, once CPEC is built with Chinese loans and machinery, Chinese will OWN EVERYTHING UNTIL you pay them back (which will never happen from the terms of loans we are seeing/hearing as well as Pakistan’s solvency situation track record). Hence China’s need for Pakistan before CPEC WILL NOT BE THE SAME as after-CPEC.