China's Exim Bank rolls over $600m Pakistan loan

In a boost to cash-strapped Pakistan's foreign exchange reserves, the Exim Bank of China has rolled over a $600 million loan, Prime Minister Shehbaz Sharif announced Tuesday.

The prime minister's statement came during his address to the launch ceremony of the Prime Minister's Youth Sports Initiative in Islamabad, where he announced to allocate more funds for youth development if he comes into power again.

“Yesterday, Exim Bank of China rolled over $600 million to Pakistan, which increased our foreign currency reserves,” PM Shehbaz Sharif said and added that assistance from friendly countries is improving economic indicators.

However, he didn’t elaborate further on when this payment was due.

The country is showing signs of economic stability after the International Monetary Fund (IMF) approved a $3 billion bailout programme and transferred the first tranche of $1.2 billion under a nine-month stand-by arrangement.

Having teetered on the brink of a sovereign debt default, Pakistan earlier this month also received $1 billion from the United Arab Emirates and $2 billion from Saudi Arabia, as both were reassured by the agreement struck between Islamabad and the IMF at the end of June.

Pakistan’s foreign exchange reserves held by the central bank slightly increased by $61 million to stand at $4.524 billion in the week ending July 7, the State Bank of Pakistan said last Thursday.

IMF projections

An IMF statement said the bailout programme would focus on an appropriately tight monetary policy aimed at curbing price pressures in the South Asian country of 220 million people.

The IMF expects inflation to average 25.9% in fiscal year 2024, though it anticipates a substantial moderation to around 16% towards the end of that period.

With the key policy rate at 22%, the government has projected inflation at 21% for fiscal 2024.

"A continued tight, proactive and data-driven monetary policy is warranted going forward," the IMF statement said.

The ailing Pakistani economy has faced an acute balance of payments crisis with only enough central bank reserves to cover barely a month of controlled imports. The IMF projects it will have an import cover of 1.4 months in fiscal 2024.

The IMF deal, a lifeline for Pakistan after it was on the cusp of default, came after eight months of tough negotiations over fiscal discipline.

"A market-determined exchange rate is also critical to absorbing external shocks, reducing external imbalances, and restoring growth, competitiveness, and buffers," the IMF said.