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China to provide $2.5bn loan to Pakistan

China will provide USD 2.5 billion in loans to Pakistan to boost the foreign exchange reserves of its "all-weather ally"

Saturday, 2nd February 2019

China will provide USD 2.5 billion in loans to Pakistan to boost the foreign exchange reserves of its "all-weather ally", a media report said Saturday.

Pakistan is nearly broke with the drying up of foreign cash reserves and mounting external debt.

The country's USD 8.12 billion reserves, which are below the minimum level that the International Monetary Fund (IMF) and the World Bank (WB) prescribe, are sufficient to cover only seven weeks of imports.

Due to this, the World Bank and the Asian Development Bank are not providing loans for budget financing.

With the anticipated USD 2.5 billion deposits, China's contribution in this fiscal year alone would surge to USD 4.5 billion, the paper said.

Pakistan has struggled to maintain reserves that are not currently sufficient to provide cover to even two months of imports despite receiving USD 4 billion in loans from two Middle-Eastern countries.

In July, China deposited USD 2 billion with the State Bank of Pakistan. In the past five years, China has emerged as Pakistan's single largest savior in times of economic crisis.

After coming into power, Prime Minister Imran Khan visited China, Saudi Arabia, and the UAE to arrange emergency loans to avoid a looming default.

Pakistan has secured USD 14.5 billion worth of commitments from these three countries that have helped largely bridged the external financing gap of the ongoing fiscal year.

The Pakistan Tehreek-e-Insaf (PTI) government blames expansionary fiscal policies of the last Pakistan Muslim League-Nawaz (PML-N) government for the overvalued exchange rate and the current external sector problems.

Before coming into power, Khan was critical of taking loans to run the country but due to extremely low level of foreign currency reserves and financing requirements standing above USD 25 billion, he sought loans from other countries.

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