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Foreign reserves drop as Pakistan settles $1 billion Chinese loan

Editor Isb by Editor Isb
May 13, 2025
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ISLAMABAD: Pakistan has repaid a $1 billion loan to the Industrial and Commercial Bank of China (ICBC) and expects it to be refinanced soon. This repayment has reduced the country’s foreign exchange reserves to $10.6 billion, the lowest in six months.

The loan was returned in two installments of $500 million each this month. The ICBC had granted the loan two years ago at an interest rate of around 7.5%. Another $300 million installment from the same bank is due in April, which Pakistan also plans to repay. Between April and June, an additional $2.7 billion in Chinese commercial loans will mature, including a $2.1 billion syndicate loan from three Chinese banks and a $300 million loan from the Bank of China.

Pakistan remains heavily reliant on foreign loans, rollovers, and refinancing to maintain its reserves. Unlike in the past, the ongoing IMF program has not significantly helped in securing major foreign financing. The country has also requested China to reschedule $3.4 billion in debt over two years to bridge a funding gap identified by the IMF. However, the Finance Ministry has not disclosed any progress on this request.

Pakistan and the IMF recently reached a staff-level agreement on the first review of the Extended Fund Facility. If approved by the IMF board, Pakistan will receive a $1 billion tranche. However, the timing of the board meeting remains uncertain and could take place in May or June. If delayed, the IMF may also review Pakistan’s 2025-26 budget before approving the tranche.

The IMF has raised concerns over taxation policies, particularly in the real estate, beverage, and tobacco sectors. It emphasizes keeping elevated transaction taxes on property investments to redirect funds toward more productive areas of the economy.

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