On Thursday, ISLAMABAD made official Pakistan and China’s decision to restructure $2.4 billion in debt, the first in what might be a series of measures to reduce Pakistan’s debt burden and make it more manageable.
The principal on loans owed to the Chinese EXIM Bank over the next two fiscal years totaling $2.4 billion has been rolled over for two years, according to a tweet from Finance Minister Ishaq Dar.
In addition, he said that $1.2 billion in principal would be carried over during the current fiscal year.
Another $1.2 billion due in the 2024-25 fiscal year was rolled over, the minister said.
“Pakistan will only make interest payments in both years,” said Dar, whose name had stayed in the news this week for the job of caretaker prime minister.
The Economic Coordination Committee of the Cabinet reportedly approved rollovers of more than $2 billion in Chinese debt last week, as reported by the Express Tribune.
The resolution that the ECC had supported based on a summary moved by the economic affairs ministry in an emergency is slightly different from the announcement made by the finance minister.
Due to one syndicate financing that did not meet Chinese rollover requirements, the ECC permitted the rescheduling of 31 loans totaling roughly $2.1 billion.
The $2.4 billion total represents the value of 32 loans.
Policy on Investment and the Future
The EXIM Bank of China has a portfolio of roughly $13 billion.
In the next two fiscal years, $2.1 billion of this total was due to mature as principle.
Despite initial opposition, Pakistan declared in June 2018 that it would be willing to negotiate loan rollovers with its bilateral creditors (except the Paris Club).
The International Monetary Fund (IMF) warned in a recent study that Pakistan’s debt sustainability was at risk due to the country’s rising gross financing needs and the exhaustion of its fiscal and reserve buffers.
It also stressed the importance of promptly delivering promised bilateral and multilateral aid in the coming years.
Higher interest rates, a larger-than-expected growth slowdown due to policy tightening, exchange rate pressures, renewed policy reversals, slower medium-term growth, and contingent liabilities related to state-owned enterprises all posed significant risks to debt sustainability, the Washington-based lender continued in its report.
There are risks to debt sustainability due to the high proportion of short-term debt, the IMF said, adding that timely disbursements from these creditors are necessary.
Given the lack of external financing and the sizeable gross funding needs that will persist over the coming years, the lender has noticed that the risks to debt sustainability, which were already high at the time of the combined 7th-8th Extended Fund Facility reviews, have become more acute.
The economic affairs ministry, according to government authorities, has finalized a payment restructuring plan for 32 loans, including guaranteed and the central debt totaling $2.4 billion.
The dates for making these payments ranged from July 2023 to June 2025.
