According to Finance Minister Ishaq Dar, the Industrial and Commercial Bank of China Ltd. on Friday approved a rollover of a $1.3 billion loan for cash-strapped Pakistan that will support its diminishing foreign exchange reserves.
Three installments will be used to pay for the facility. The Pakistani central bank has already received the first one, worth $500 million, according to a tweet from Dar.
He predicted that it would improve FX reserves.
The money is crucial for the South Asian economy, which is experiencing a balance of payments crisis as its central bank’s foreign exchange reserves have shrunk to levels barely able to cover three weeks of imports, according to Dar, who claimed that Pakistan has recently paid the money back to the ICBC.
China has already loaned Pakistan $700 million to help increase its foreign exchange reserves.
According to Dar, Pakistan is effectively borrowing back the $2 billion it has paid to China in debt repayments for previously approved loans.
He claimed that in order to bridge its funding gap this fiscal year, which ends in June, Pakistan would require $5 billion in outside funding.
Only after Islamabad enters into an agreement with the International Monetary Fund (IMF), which the minister claimed should be completed by next week, would Pakistan receive more outside funding.
Since early last month, the lender has been in talks with Pakistan to resolve its ninth review; if accepted by its board, the accord will release a $6.5 billion rescue tranche worth over $1 billion. Dar dismissed worries about a default risk and asserted, “We will, God willing, lift this country out of this morass.