Rs26b interest paid on a Chinese loan


Pakistan has paid more than Rs 26 billion in interest to China for using a $ 4.5 billion Chinese trade finance facility to repay debt maturing in the last fiscal year – a cost the country endures due to the failure of successive governments to put the economy on a solid footing.

The State Bank of Pakistan (SBP) on Friday released its annual financial statements for the 2020-2021 fiscal year which ended on June 30.

The report found that the central bank has fully utilized the $ 4.5 billion, or 30 billion yuan, trade finance facility available under the China-Pakistan currency swap deal.

“During the year, the overall limit of 20 billion yuan was further extended to 30 billion yuan for a period of three years against the rupee with maturity installments of three months to one year,” the communicated. “These purchases were fully used as of June 30, 2021.”

He added that Rs26.1 billion interest was charged on the outstanding balance at the agreed rates.

In terms of rupees, the value of bilateral currency swaps increased from 476.6 billion rupees the previous year to 748.5 billion rupees in June of this year, an increase of 272 billion rupees in a single year. , according to the central bank.

Of the 748.5 billion rupees, the interest-bearing component was 731 billion rupees, the SBP said.

Pakistan has made extensive use of China’s trade finance facility to repay its external debt and keep its gross foreign exchange reserves at comfortable levels.

The $ 4.5 billion facility is part of the SBP’s gross official foreign exchange reserves of 17.1 billion. China has also extended $ 4 billion in SAFE deposits, which are also part of the $ 17.1 billion reserves.

Excluding these loans, the central bank’s foreign exchange reserves remain meager.

The trade facility, originally intended to promote bilateral trade in the respective local currencies, was used to pay off foreign debt. In fiscal year 2019-20, Pakistan paid Rs 20.6 billion in interest on the use of the $ 3 billion facility.

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However, in the past fiscal year, the limit on Chinese currency swaps was extended to $ 4.5 billion after Pakistan approached China to help repay Saudi debt as it matured.

In December last year, The Express Tribune reported that Pakistan and China had agreed to increase the size of a 2011 bilateral currency exchange agreement (CSA) by an additional 10 billion Chinese yuan, or about $ 1.5 billion.

The advantage of this arrangement was that the additional Chinese loan of $ 1.5 billion would not be reflected on the books of the federal government and it would not be treated as part of Pakistan’s external public debt.

Saudi Arabia provided $ 6.2 billion in financial packages to Pakistan for three years in 2018. This included $ 3 billion in cash assistance and $ 3.2 billion in annual oil and gas supplies. on deferred payments.

But the Kingdom had claimed its money earlier than expected. Pakistan was paying 3.2 percent interest on the $ 3 billion facility, according to information the finance ministry shared with the National Assembly.

Pakistan repaid the Saudi loan after taking a loan of an equal amount from China.

Saudi Arabia has again extended a $ 4.2 billion financial package for one year on the same terms, financial adviser Shaukat Tarin said on Wednesday.

Pakistan’s Tehreek-e-Insaf (PTI) government, like its predecessors, has failed to exploit non-debt-generating flows, which has exposed the country to various risks. Exports are growing at a much slower pace than imports, while foreign direct investment has also stagnated for three years. Foreign remittances were the only non-creative source of debt that was developing exceptionally well.

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Much of the $ 17 billion in official foreign exchange reserves has been borrowed, particularly from private commercial banks.

The government failed to reinstate the IMF’s suspended $ 6 billion program. The IMF and Pakistan maintained their positions, but the new Saudi $ 4.2 billion package provided relief, reversing the rupee’s depreciation of 3.7 rupees to the dollar in just three days.

However, the sustainability of the rupee against the US dollar would depend on whether or not the government finds a lasting solution to its external sector problems.

The delay in reinstating the IMF’s program could undermine the program loans of the other two multilateral creditors, which were essential to maintain borrowed foreign exchange reserves at their current levels.

The SBP report said that a bilateral currency exchange agreement (CSA) was concluded between the Bank and the People’s Bank of China in December 2011 to promote bilateral trade, finance direct investment, provide support short-term liquidity and for any other purpose mutually agreed upon between the two central banks.

Posted in The Express Tribune, October 30e, 2021.

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