ISLAMABAD, March 28: Pakistan recently repaid a $1 billion commercial loan to the Industrial and Commercial Bank of China (ICBC) with the expectation of securing a refinancing arrangement soon.
This repayment caused a temporary dip in the country’s foreign exchange reserves, bringing them down to $10.6 billion, their lowest level in six months.
According to government officials, the $1 billion loan was repaid in two equal installments this month. The ICBC had initially provided this loan two years ago at a floating interest rate of approximately 7.5%.
Another $300 million tranche from ICBC is set to mature by mid-April, which the government also plans to repay.
The repayment of the second $500 million installment in March led to a decline in the central bank’s reserves to $10.6 billion, significantly reducing the country’s overall foreign exchange holdings.
The first $500 million installment had been cleared earlier in the month, with the central bank covering the gap through market purchases and some foreign inflows.
The State Bank of Pakistan (SBP) governor previously stated that in 2024, the bank acquired $9 billion from the market to build foreign exchange reserves.
Without these purchases, the reserves would have been as low as $2 billion, despite Pakistan’s ongoing International Monetary Fund (IMF) program.
ICBC Refinancing
The Finance Ministry remains optimistic that ICBC will refinance the loan, with discussions already underway. However, the final interest rate for the refinancing has yet to be determined.
Pakistan continues to rely heavily on financial support from China, which has been rolling over $4 billion in cash deposits, $6.5 billion in commercial loans, and a $4.3 billion trade financing facility.
Between April and June 2025, an additional $2.7 billion in Chinese commercial loans will mature, including a $2.1 billion syndicated loan from three Chinese banks and a $300 million loan from the Bank of China.
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The government will need to refinance these loans to maintain its critical reserve levels.
The country’s economic stability remains heavily dependent on securing new foreign loans and refinancing existing debts. Unlike previous instances, the current IMF program has not been particularly effective in securing major foreign financing.
Hopes From IMF
This week, Pakistan and the IMF reached a staff-level agreement for the completion of the first review of the Extended Fund Facility (EFF). Once approved by the IMF board, the agreement will lead to the release of a $1 billion tranche.
However, the timing of the board meeting remains uncertain due to various external and domestic factors, with discussions suggesting it could take place in May or June.
If the meeting is delayed until June, the IMF may also seek to review and approve Pakistan’s 2025-26 fiscal budget before disbursing funds.
Key issues still under discussion include taxation policies for real estate, beverages, and tobacco.
The IMF is particularly resistant to lowering transaction taxes on property investments, as it aims to shift capital from speculative activities to productive sectors of the economy.
Additionally, last month, Pakistan requested China to reschedule $3.4 billion in debt for two years to help close an external financing gap identified by the IMF.
This request was made to the Export-Import (Exim) Bank of China for loans maturing between October 2024 and September 2027. The Finance Ministry has not yet disclosed the status of this request.
Pakistan must identify financing sources to bridge a $5 billion external financing shortfall over the course of its three-year IMF program.
Also Read: SBP Reserves Dip Below $11.5 Billion Amid Debt Repayments
During recent IMF review discussions, the fund acknowledged that Pakistan’s external sector had stabilized but highlighted remaining vulnerabilities.
The IMF suggested that these could be addressed through a combination of tight fiscal and monetary policies, along with greater exchange rate flexibility.
The Pakistani rupee has remained relatively stable against the US dollar throughout this fiscal year, although it has experienced slight depreciation in recent days. On Thursday, the rupee closed at Rs280.2 per dollar.
