China has assured the refinancing of $3.7 billion in maturing commercial loans—this time entirely in Chinese currency (RMB)—before the end of June. The move is expected to help Pakistan maintain its fragile foreign exchange reserves above the $10 billion mark, easing pressure on the economy during a critical fiscal juncture.
According to senior government officials, the refinancing package includes $2.4 billion due to mature next month. The shift to lending exclusively in yuan marks a significant step in China’s broader strategic push to decouple from the U.S. dollar in international trade and finance.
Previously, Beijing had provided support in multiple currencies, including the U.S. dollar. However, the new arrangement aligns with China’s global de-dollarization strategy and reinforces its deepening economic partnership with Islamabad.
Officials revealed that Pakistan has already repaid a $1.3 billion loan from the Industrial and Commercial Bank of China (ICBC) in three tranches between March and April. China has now committed to relending the amount in yuan, pending final clarifications sought by the ICBC. The earlier loan carried a floating interest rate of approximately 7.5%.
The State Bank of Pakistan’s reserves currently stand at $11.4 billion, buoyed by a recent $1 billion injection from the International Monetary Fund (IMF). Once the Chinese refinancing is completed, reserves could climb to $12.7 billion—though officials warn this may dip again by mid-July without further inflows.
Crucially, a syndicate loan worth RMB 15 billion (around $2.1 billion) from three Chinese commercial banks—China Development Bank (RMB 9 billion), Bank of China (RMB 3 billion), and ICBC (RMB 3 billion)—is set to mature in June. Pakistan has pledged to repay the amount slightly ahead of schedule to ensure timely refinancing before the fiscal year closes. The renewed loan will also have a tenure of three years.
Negotiations are ongoing regarding the interest rate structure. China has proposed either a fixed rate or a floating rate that will not be linked to the Shanghai Interbank Offered Rate (Shibor), a shift from previous arrangements.
Another $300 million loan from the Bank of China is also set to mature next month and will be refinanced in yuan, officials confirmed.
This financial maneuvering is essential for Pakistan to meet its IMF-mandated goal of raising foreign exchange reserves to approximately $14 billion by the end of the current fiscal year. Islamabad continues to rely heavily on Chinese support, including $4 billion in cash deposits, $5.4 billion in commercial loans, and a $4.3 billion trade finance facility.
As of December 2024, Pakistan’s total foreign commercial borrowing stood at $6.2 billion, of which Chinese loans accounted for the bulk, according to the IMF.
Despite recent rupee depreciation, the exchange rate has largely held steady this fiscal year, closing at Rs282.2 to the dollar on Tuesday.
The Ministry of Finance did not provide an official comment on the refinancing developments, nor did it confirm the terms of the ICBC or syndicate loan rollovers when approached.
The IMF has noted that while Pakistan has secured firm commitments for $1 billion in the coming year, access to global commercial financing remains limited. A small issuance of a Chinese “Panda” bond is expected next fiscal year, with a cautious return to Eurobond and global Sukuk markets projected no earlier than FY2027.
Pakistan’s continued dependency on China underscores the strategic and financial alliance between the two nations, as well as Beijing’s expanding influence in regional monetary policy through the promotion of the yuan.
