China comes to Pakistan’s rescue with $1.2 billion bailout loan

China comes to Pakistan’s rescue with $1.2 billion bailout loan

BEIJING: China has increased its economic pull in Pakistan over the past year, providing over $1 billion in loans to help the country stave off from a possible currency crisis.

State-backed Chinese banks have come to Pakistan’s rescue twice already – a $900 million loan in 2016 and $300 million in the first three months of this year – officials told the Financial Times.

China’s financial help shows the risky and unstable stocks of Pakistan’s foreign currency that have been depleted in recent months as imports have increased while exports and inbound remittances fallen. It also demonstrates both countries’ close partnership at a time of strains between Pakistan and the US.

Beijing’s investment in Pakistan under the China-Pakistan Economic Corridor (CPEC) is slated to reach $62 billion from $55 billion after China approved more projects in different sectors including the development of industrial zones.

However, despite of the expected benefits Pakistan will reap from the deal, CPEC infrastructure is poised to further deplete the foreign currency stocks, used to pay contractors and suppliers, the Financial Times noted.

Figures from the State Bank of Pakistan revealed that Pakistan’s net reserves dropped to $17.1 billion at the end of February from $18.9 billion at the end of October and $25 billion several years ago. This has caused Pakistan to seek emergency loans from outside sources to pay off previous debts made in foreign currencies.

Meanwhile, a brokerage house estimated that the south Asian country is entitled to pay Beijing up to $90 billion in three decades for the $50 billion worth of loan and investment portfolio China rendered to Pakistan, but the amount could increase if more projects are added.

“Average annual repayment of CPEC will be $3 billion. [However, in medium term] between fiscal year 2020-25, it will range between $2-$5.3 billion with average repayment of $3.7 billion,” Saad Hashemy, an analyst from Topline Securities, said.

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