China-to-Pakistan Refinancing Plan Will Pay Out $2.3 Billion
China has agreed to refinance Pakistan by making a multi-billion dollar payment, according to recent statements from Pakistan’s Federal Minister of Finance, Miftah Ismail. The deal is the latest step in Pakistan’s attempts to avoid economic collapse.
China and Pakistan Agree to Refinancing Plan
Ismail says that China has agreed to the terms and conditions of a refinancing plan that will involve a transaction of 15 billion renminbi—equivalent to $2.3 billion or 2.1 billion euros.
It is unclear whether the transaction has been carried out or is still pending. “Inflow is expected shortly after some routine approvals from both sides,” Ismail wrote on Twitter on Thursday, June 2.
Ismail said that the deal will “help shore up [Pakistan’s] foreign exchange reserves.”
The country’s forex reserves have been under harsh pressure recently and have rapidly declined in value. In fact, the State Bank of Pakistan recently said that the value of the country’s reserves fell by $190 million in the first week of May to reach a value of $10.3 billion.
That trend will make it necessary for the nation to seek wealth from other sources.
Pakistan’s Economy Is In Crisis
China’s refinancing plan is just one factor in Pakistan’s economic situation. The country is largely reliant on foreign loans, an economic opportunity that seems to be growing scarce.
Data from the Ministry of Economic Affairs shows that Pakistan received a mere $248 million of foreign loans in April, including $100 million of oil on deferred payments from Saudi Arabia.
Pakistan is also seeking a $6 billion loan from the International Monetary Fund (IMF). Though that loan was agreed upon years ago and has now been partially paid out, its future is uncertain. Funding was paused in April as the IMF demanded that Pakistan form a new government.
These factors together bode poorly for the country. Pakistan’s economy is in crisis and some estimates suggest that it will need $36 billion in order to avoid a collapse.
The country’s national currency, the Pakistani rupee, is also declining rapidly in value. It fell to a historic low of 200 rupees to the dollar this May.
With few positive prospects on the horizon, the rupee will likely continue to be an undesirable investment among forex investors—and certainly one that carries a high level of risk.
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