China has guaranteed that Pakistan will receive RMB 3.7 billion in commercial loans by the end of June. This amount includes RMB 2.4 billion worth of loans set to mature next month.

The move is expected to help maintain Pakistan’s foreign exchange reserves in the double digits.

Unlike previous instances where Beijing issued loans in non-Chinese currencies, China has this time decided not to offer loans in US dollars.

This is part of a broader strategic effort to decouple its economy from the greenback, government sources told The Express Tribune.

Sources revealed that China provided these assurances during recent meetings held to facilitate the refinancing of loans maturing between March and June 2025.

Repayment and Refinancing Details

According to officials, Pakistan has already repaid a $1.3 billion loan from the Industrial and Commercial Bank of China (ICBC) in three installments between March and April this year.

The ICBC is expected to release the funds in Chinese currency within the coming days, pending clarification from Pakistan. The loan, initially granted two years ago, carried a floating interest rate equivalent to approximately 7.5%.

Following a $1 billion injection by the IMF this month, the State Bank of Pakistan’s reserves stand at approximately $11.4 billion.

Sources estimate that reserves could rise to $12.7 billion after the Chinese refinancing, although a dip is anticipated mid-next month.

Syndicate Loan Maturing in June

A syndicate loan of RMB 15 billion (around $2.1 billion) issued by three Chinese commercial banks is due in June.

To ensure the funds are repaid before the fiscal year’s end, Pakistan plans to repay the amount at least three days before maturity. China will provide the refinancing in RMB.

The Bank of China contributed RMB 3 billion, the China Development Bank provided RMB 9 billion, and ICBC offered RMB 3 billion.

According to government sources, the loan will be extended for another three years.

However, the issue of interest rates remains unresolved. Chinese authorities have presented Pakistan with two options: a fixed or floating interest rate, excluding the Shanghai Interbank Offered Rate (Shibor) as the benchmark.

Strategic Shift Toward RMB Borrowing

Pakistan must refinance this loan promptly to keep reserves in double digits by June’s end. Under the current IMF program, Pakistan has committed to boosting its reserves by nearly $14 billion in the ongoing fiscal year.

Additionally, a $300 million loan from the Bank of China, also maturing next month, must be refinanced to sustain critical reserve levels. This, too, will be refinanced in Chinese currency, according to sources.

Pakistan’s move to decouple its borrowing from the US dollar aligns with China’s broader strategy. Beijing remains a vital financial partner for Islamabad, regularly rolling over $4 billion in cash deposits, $5.4 billion in commercial loans, and a $4.3 billion trade financing facility.

Pakistan’s External Financing Outlook

As of December 2024, Pakistan’s total foreign commercial loans stood at $6.2 billion, with $5.4 billion owed to China, according to the latest IMF report.

Despite a slight depreciation in recent days, the rupee-dollar exchange rate has remained largely stable throughout this fiscal year. On Tuesday, the exchange rate was recorded at Rs282.2 to the dollar.

Qumar Abbasi, spokesperson for the Ministry of Finance, declined to comment officially. He was asked to confirm whether China had agreed to refinance the $1.3 billion ICBC loan repaid in March-April in RMB, and whether the $2.1 billion CDB-led syndicated loan due in June would also be refinanced in RMB. He did not respond.

The IMF report noted that Pakistan has secured firm commitments for $1 billion in financing over the next year. It added that most major bilateral partners remain committed to rolling over their short-term liabilities throughout the program.

However, the IMF warned that access to external commercial financing will remain limited. A modest issuance of a “Panda” bond is expected in the upcoming fiscal year, with a gradual return to the Sukuk and Eurobond markets projected to begin in fiscal year 2027 as a sign of restored policy credibility.