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Analysts expect Pakistan to go to the IMF after this month’s election. Photo: Bloomberg

China lends US$1 billion to Pakistan as speculation over IMF bailout grows

Country is increasingly seeking Chinese help in increasing foreign exchange reserves


China has lent Pakistan US$1 billion to boost the South Asian country’s plummeting foreign currency reserves, two sources in Pakistan’s finance ministry told Reuters, amid growing speculation of another International Monetary Fund bailout.

The latest loan highlights Islamabad’s growing dependence on Chinese loans to buffer its foreign currency reserves, which plunged to US$9.66 billion last week from US$16.4 billion in May 2017.

The lending is the outcome of negotiations for loans worth US$1-2 billion that was first reported by Reuters in late May, the two sources told the news agency.

“Yes, it is with us,” said one finance ministry source, in reference to the Chinese money. The second source added that the “matter stands complete”.

The finance ministry spokesperson did not respond to a Reuters request for comment.

With the latest loan, China’s lending to Pakistan in this financial year ending in June is set to breach US$5 billion.

In the first 10 months of the financial year China lent Pakistan US$1.5 billion in bilateral loans, according to a finance ministry document seen by Reuters. During this period Pakistan also received US$2.9 billion in commercial bank loans mostly from Chinese banks, ministry officials told Reuters.

Beijing’s attempts to prop up Pakistan’s economy follow a strengthening of ties in the wake of China’s pledge to fund badly-needed power and road infrastructure as part of the US$57 billion China-Pakistan Economic Corridor (CPEC), an important cog in Beijing’s vast Belt and Road Initiative.

But analysts say China’s help will not be enough and predict that after the July 25 national election the new administration is likely to seek Pakistan’s second bailout since 2013, when it received a package worth US$6.7 billion from the IMF.

“Looking at the current scenario, it is likely after the new government comes in that they will go to the IMF,” said Suleman Maniya, head of research at local brokerage house Shajar Capital.

This article appeared in the South China Morning Post print edition as: Pakistan gets US$1b loan as forex reserves nosedive