China rolls over Pakistan's $2 bln loan

Amid Pakistan's economic difficulties, China has stepped in to provide crucial support by agreeing to extend the term of a $2 billion debt, offering a significant boost to its ally.

Initially, there were reports that China sought higher interest rates on the debt. However, following negotiations, both parties agreed to maintain the current terms.

This decision brings relief to Pakistan, which has been facing escalating interest costs due to its strategy of bolstering foreign exchange reserves through deposits.

The debt, set to mature on March 23, posed a substantial challenge to the country's already strained finances. By extending the loan term, it is anticipated that pressure on the State Bank of Pakistan's diminishing foreign reserves, currently at $8 billion, will be alleviated.

Caretaker Prime Minister Anwaar-ul-Haq Kakar played a crucial role in securing this agreement, formally appealing to Chinese Premier Li Qiang to extend the loan. In his correspondence, PM Kakar expressed gratitude for China's steadfast financial assistance during Pakistan's economic trials.

This debt extension is part of China's ongoing support for Pakistan. Last year, amid Pakistan's struggle to secure a vital loan from the International Monetary Fund (IMF), Beijing provided substantial aid by extending over $2 billion in debt, helping Pakistan avoid an immediate default.

In addition to this debt extension, China has also provided further financial support, including safe deposits totaling $4 billion. These measures are expected to alleviate some of Pakistan's external payment burdens.

Despite these developments, analysts caution that Pakistan's economic challenges persist and require comprehensive strategies to address underlying issues such as currency devaluation, stagnant foreign direct investment, and trade imbalances.