Finance Minister Miftah Ismail said Thursday that Chinese banks have agreed to refinance Pakistan with $2.3 billion worth of funds which will “shore up Pakistan’s foreign exchange reserves.”
Taking to his Twitter handle, Miftah wrote: “Good news. The terms and conditions for refinancing of RMB 15 billion deposit by Chinese banks (about $2.3 billion) have been agreed.”
The finance minister further added that inflow is expected “shortly” after some routine approvals from both sides, adding that this will help shore up the country’s foreign exchange reserves.
The news comes as a lifeline as the country is already facing an uncertain economic situation due to a delay in the revival of stalled multibillion-dollar International Monetary Fund (IMF) programme.
The development comes as a massive relief to economic policymakers that saw foreign exchange reserves held by the State Bank of Pakistan (SBP) fall to $10.09 billion, with the level staying at less than 1.5 months of import cover.
The agreement with Chinese banks is expected to bolster the reserves and enable the country to make import payments while lending some support to the rupee as well which has lost over 25% since the start of the outgoing fiscal year 2021-22.
The restoration of Pakistan’s delayed IMF programme rests on the government’s capacity to make fiscal adjustments of about 2.5% of the gross domestic product (GDP), or Rs2,000 billion, by increasing revenues and reducing expenditures in the upcoming budget 2022-23.
The IMF’s wish-list or demands do not end here, as the government must end petrol subsidies of Rs39 per litre and diesel subsidies of Rs53 per litre, raise electricity tariffs by Rs8 per unit via an increase in base tariff and fuel price adjustments, and increase gas tariffs by 20% on average to demonstrate its commitment to implementing the much-needed ‘reforms agenda’ under the advice of the IMF programme.
However, Finance Minister Miftah Ismail told The News that the staff-level agreement with the Fund was expected to be struck by mid-June 2022.
It indicates that the staff-level agreement is expected only after the announcement of the next budget for 2022–23, in line with the IMF programme’s objectives.