In order to close the funding deficit, Pakistan is requesting $600 million in new loans from two Chinese banks: Report

 In order to close the funding deficit, Pakistan is requesting $600 million in new loans from two Chinese banks: Report

According to representatives of the finance ministry, negotiations are progressing well, and loans should be obtained by the end of the next month.

Low on funds According to a media source on November 8, Pakistan has applied for new loans totaling $600 million from two Chinese banks in order to close a significant financial gap while it negotiates with the IMF for the release of the second tranche of a $3 billion rescue package.

The federal government was negotiating a $600 million loan with the Bank of China and the Industrial and Commercial Bank of China (ICBC), according to The Express Tribune daily, which cited sources for its claim. We have contacted every bank about providing $300 million in loans. According to representatives of the finance ministry, negotiations are progressing well, and loans should be obtained by the end of the next month.

According to the article, Qamar Abbasi, a spokesperson for the Ministry of Finance, did not answer questions. In addition, Abbasi remained silent when asked whether Pakistan had applied for a second loan from China's State Administration of Foreign Exchange (SAFE). Already, SAFE has disbursed $4 billion in loans, all of which are rescheduled annually since Pakistan is unable to repay them.

The report, which cited diplomatic sources, said that China and Pakistan were closely working together to finish the last technical steps required for the $600 million loan. China, Pakistan's all-weather partner, has evolved into Islamabad's final chance for emergency finance in recent years. China has been contacted by every country, including the guardians, to request financial assistance.

To assist Pakistan in stabilizing its external sector, the Chinese have been offering loans from SAFE deposits, concessionary loans, and commercial loans. By early repayment of $1.3 billion, China prevented Pakistan's already dangerously low foreign exchange reserves from plunging further lower in June of this year.

Pakistan has set aside USD 4.5 billion for foreign commercial loans, but because of its dismal macroeconomic conditions, high debt sustainability concerns, and credit ratings, it has not yet been able to get any funding. According to AidData, a Western research lab, in its most recent report, since 2017, a greater percentage of Chinese development finance has gone toward rescue loans rather than developmental projects, which were the mainstay of CPEC during its peak from 2014 to 2017 when new commitments were forthcoming in large amounts.

According to AidData, China has lent USD 21.2 billion to Pakistan for general budget assistance since 2000, accounting for 30% of all loans made to the country. The purpose of taking out these loans was to raise the already low foreign currency reserves and prevent default. The government has told the IMF that the macroeconomic environment will determine whether or not to approve its USD 6.5 billion borrowing plan.

Pakistani negotiators expressed optimism that the country's poor credit ratings—which characterize Pakistani debt as very risky—may improve if the current negotiations are successful. According to a senior Pakistani official who spoke on condition of anonymity, "we are expecting that these agencies will upgrade their economic assessments on Pakistan even if that is no immediate improvement in ratings."

Following the agreement at the staff level, Pakistani authorities want to re-engage non-Chinese banks that previously provided loans but are now hesitant because of their low credit ratings and increasing risks associated with the external sector. On the fringes of the IMF-World Bank conference last month, Interim Finance Minister Dr. Shamshad Akhtar met with officials of Standard Chartered Bank, Deutsche Bank, and the international credit rating agencies.

Pakistan's credit rating has been reduced by three international credit rating agencies, increasing its borrowing costs and making it more difficult to arrange fresh foreign commercial loans. Pakistan has allocated USD 1.5 billion for Eurobonds as well, although the deal is contingent on the IMF granting a certificate of adequate economic health. Prior to entering international capital markets, Pakistan's credit rating has to improve and there needs to be stability in the world interest rate environment.

The IMF and the central bank reportedly spoke about currency rate control as well, according to sources. According to the sources, the IMF believed that a trend of rupee gain followed by depreciation during the previous two weeks suggested market involvement. Pakistan agreed to implement a market-based exchange rate system with the Washington-based global lender as part of the $3 billion IMF rescue package. The dollar's value gradually decreased to Rs 276 before increasing once again as a result of government action to stop money hoarding and smuggling.

On November 8, the rupee lost Rs 1.11 in a single day, closing at around Rs 286.40 to a dollar in the interbank market. According to the report, the central bank updated the IMF on its progress in terminating export subsidies and other programs, as well as the capitalization of two undercapitalized private commercial banks.