Pakistan takes Loan of Rs 32,000 Crore from China to Repay Loan

Fresh Chinese Loan in Local Currency

Pakistan aims to keep its dwindling foreign exchange reserves afloat. To achieve this, it is set to receive an additional loan of $3.7 billion (approximately ₹32,000 crore) from China by the end of June. Uniquely, the loan will be disbursed in Chinese yuan. This is instead of US dollars. It marks a significant shift in China’s lending approach.

This will be the largest single foreign loan Pakistan is expected to receive in recent times. It is aimed at temporarily strengthening its foreign reserves. However, this financial support comes amid mounting debt obligations that Pakistan needs to settle in June itself.

China Shifts Away from Dollar Lending

Unlike previous instances, China has opted not to extend the loan in US dollars. Instead, the funding will be made in yuan. This reflects China’s broader goal to reduce its reliance on the dollar-based financial system.

Official sources quoted in local media outlet The Express Tribune reported this commitment. It was made during recent meetings. These meetings focused on refinancing loans set to mature between March and June 2025.

Pakistan Clears Previous ICBC Loans

In March and April this year, Pakistan repaid $1.3 billion to the Industrial and Commercial Bank of China (ICBC) in three instalments. Officials noted that ICBC had asked for additional clarifications regarding the repayments.

The earlier loans were provided at floating interest rates, averaging around 7.5%, and were due for repayment over a two-year period.

IMF Support and Expected Boost to Reserves

Following a $1 billion disbursement from the International Monetary Fund (IMF), Pakistan’s foreign reserves stood at $11.4 billion. With the upcoming Chinese loan, reserves could rise to $12.7 billion — although the increase is likely to be short-lived due to upcoming repayments.

More Debt Payments Due in June

In June, Pakistan must repay a $2.1 billion syndicated loan (about 15 billion yuan) to three Chinese commercial banks. The government plans to make this payment at least three days before its due date. This ensures it’s cleared before the fiscal year ends.

The China Development Bank is refinancing this loan for a third year with ¥9 billion. The Bank of China is refinancing with ¥3 billion. ICBC is also refinancing with ¥3 billion. All amounts are in Chinese yuan.

While the fresh funding from China offers temporary relief, Pakistan’s long-term financial woes remain unresolved. With billions in loans maturing, the country’s financial landscape is becoming more challenging. More borrowing is on the horizon. The growing dependence on external lenders, especially China, highlights its precarious economic situation.

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