Pakistan has decided to push for a $ 3 billion extension of Chinese trade finance, which the country will not be able to repay when the loan expires in May-2021.
According to the Express Tribune report, the State Bank of Pakistan (SBP) fully leveraged $ 3 billion or RMB 20 billion in additional trade finance instruments available under the China-Pakistan currency swap agreement, as highlighted in SBP financial reports for 2019-20 financial year (FY20).
It should be noted here that most of the funds originally earmarked to stimulate bilateral trade in the respective local currencies have been used to pay off outstanding external debt and to maintain general foreign exchange reserves at an acceptable level.
According to the central bank, State Bank of Pakistan and the People’s Bank of China (PBOC) entered into a bilateral currency exchange agreement (CSA) in December 2011 with the aim of “stimulating bilateral trade, financing direct investment and providing short-term liquidity support”.
SBP’s financial report says, “The State Bank bought and used PKR 475 billion over a year with maturities ranging from three months to one year.”
“We plan to extend the Currency Swap Agreement (CSA) for another three years in 2021,” an SBP spokesman said, adding that the $ 3 billion funds are part of the $ 12.1 billion current foreign exchange reserves held by the central bank. …
In the event that an extension of the loan is not secured, SBP will be responsible for repaying $ 3 billion to China using the dollar to buy the RMB, which will surely affect the country’s foreign exchange reserves.
What’s more, another $ 4 billion short-term loan that Pakistan has borrowed from Saudi Arabia and the United Arab Emirates will also expire in the next few months.
What’s more, the government is still trying to revive the $ 6 billion International Monetary Fund program, which remains suspended as the International Monetary Organization continues to push for a mini-budget and higher electricity tariffs in Pakistan as the country faces persistently high inflation. …
A delay in rebuilding the IMF program could hurt the program’s loans, which were needed to repay the $ 10.6 billion in outstanding loans in the current fiscal year.