Prime Minister Shahbaz Shareef has Requested a $2 Billion Loan Waiver

Prime Minister Shahbaz Shareef has Requested a $2 Billion Loan Waiver

(By eliminating the IMF and some Chinese loans, the government reports borrowing of $7 billion)

Miftah Ismail, the Finance Minister, stated on Saturday that excluding the IMF and certain Chinese loans was a mistake that will be corrected.

Pakistan’s foreign economic aid proposal for the fiscal year 2022-23 would reach a record $24 billion after the adjustment is completed and properly communicated to the National Assembly.

Pakistan has asked China for a $2 billion debt rollover, but it failed to account for Chinese and International Monetary Fund (IMF) loans in the budget, underreporting foreign borrowing by $7 billion for the coming fiscal year.

The government has not included $4 billion in loans from China’s State Administration of Foreign Exchange (SAFE) and at least $3 billion in loans from the International Monetary Fund (IMF) in its foreign revenues. The IMF’s revenues are connected to the reintroduction of its bailout program.

A $1 billion Chinese SAFE deposit loan will mature before the end of the month, and another $1 billion loans will mature before the end of the next month.

Pakistani Authorities Perspective

According to Pakistani authorities, Prime Minister Shehbaz Sharif has formally requested that the Chinese government roll over both of the maturing loans.

China has already rolled over $2 billion in SAFE deposit loans in March of this year.

The Ministry of Finance, on the other hand, did not include these $4 billion loan rollovers in the borrowing plan for the next fiscal year. The overall external receipts for the fiscal year 2022-23 were anticipated to be $17 billion, or Rs3.13 trillion, according to budget books.

These loans are used to supplement the budget, create foreign exchange reserves, and fund projects.

However, after factoring in $4 billion in Chinese SAFE deposit loans and the remaining $3 billion in IMF loans, the borrowing forecast for the following fiscal year will rise to $24 billion.

Miftah Ismail, the Finance Minister, had voiced optimism that the IMF will boost the loan sum from $6 billion to $8 billion.

The international lender has already disbursed $3 billion in loans. If the loan is expanded to $8 billion, the government will have to declare $5 billion in IMF borrowing in its yearly budget.

According to sources, convincing the IMF to restart the loan program would take a lot of work because several of the budget’s spending and income initiatives did not meet the IMF’s expectations. The authorities expect tough negotiations with the IMF delegation in the coming days.

According to them, the administrator may have to reverse some financial initiatives in order to gain the IMF’s approval for the budget.

In its borrowing strategy for next year, the government has allocated $7.5 billion (Rs1.4 trillion) in foreign commercial loans. These are mostly commercial loans from China.

The agreement with China

Last Monday, the finance minister announced an agreement with China to roll over $2.2 billion in Chinese commercial loans, or RMB 15 billion. Pakistan has yet to get the funds, which it had intended to receive within days of the agreement.

2.2 Billion Loan agreement Between Pakistan and China
2.2 Billion Loan agreement Between Pakistan and China

Pakistan had requested a total lifeline of $21 billion during former Prime Minister Imran Khan’s visit to Beijing in February this year, which included a rollover of $10.7 billion in commercial and SAFE deposit loans.

The rollover of $4 billion in SAFE deposits and the maturity of $6.7 billion in commercial loans were among them.

As of last week, Pakistan has only $9.2 billion in foreign exchange reserves, and its currency is rapidly weakening. In the interbank market, the rupee plummeted to its lowest level of Rs203 per dollar.

Pakistan had also requested a $5.5 billion increase in the size of the currency swap facility from $4.5 billion to $10 billion, which the Chinese authorities refused to allow at the time.

Pakistan had intended to issue $2 billion in overseas Sukuk and Eurobonds in the next fiscal year, according to budget records. Foreign investors are afraid of defaulting on prior bond payments; therefore they can only receive a higher price if the IMF program is revived.

In the next fiscal year, the government is expecting to receive a $1.2 billion loan from the Islamic Development Bank for deferred payments on oil and $800 million in oil facilities from Saudi Arabia.

It also has a $1.5 billion set up for project finance. In the next fiscal year, program loans are expected to total $4 billion, including $1.6 billion in Naya Pakistan Certificates, a product of the former PTI administration.


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