Pakistan is saved yet again as China has agrees to immediately provide $1.5 billion financing line to Islamabad to repay the $2 billion Saudi Arabia debt.
Now, out of $2 billion, Pakistan is set to return the $1 billion on Monday, said sources in the finance ministry and the State Bank of Pakistan (SBP). “The remaining $1 billion is due in January,” they added.
“However, this time, China has not given the loan from its State Administration of Foreign Exchange, commonly known as SAFE deposits, nor has it extended a commercial loan,” said the sources.
Instead, both the countries have agreed to augment the size of a 2011 bilateral Currency-Swap Agreement (CSA) by an additional 10 billion Chinse Yuan or around $1.5 billion, the sources said. This has increased the size of the overall trade facility to 20 billion Chinese Yuan or $4.5 billion.
The CSA is a Chinese trade finance facility that Pakistan has been using since 2011 to repay foreign debt and keep its gross foreign currency reserves at comfortable levels instead for trade related purposes.
The benefit of this arrangement will be that the additional $1.5 billion Chinese loan will not reflect on the book of the federal government and it will not be treated as part of Pakistan’s external public debt.
The bilateral Currency Swap Agreement was reached between the SBP and the Peoples Bank of China (PBOC) in December 2011 “in order to promote bilateral trade, finance direct investment and provide short-term liquidity support”, according to the central bank.
The original agreement had been renewed in December 2014 for a period of three years with overall limit of 10 billion yuan or $1.5 billion. It was further extended in May 2018 for a period of three years, with the amount being increased to 20 billion Yuan or $3 billion.
This agreement will expire in May next year, which the central bank has decided to request China to further extend it for three more years.