Pakistan set to Receive $3.3B from Chinese banks, boosting reserves above $14B by June 30

Pakistan is on the verge of securing a crucial $3.3 billion loan package from Chinese banks, a move expected to significantly bolster the country’s foreign exchange reserves and provide much-needed fiscal breathing room as the financial year closes.

Key Details of the Loan Agreement

• Loan Structure:
  The package consists of two parts: a $2 billion syndicated loan from a consortium of Chinese banks (with a three-year term) and a $1.3 billion refinancing of a previously repaid commercial loan from the Industrial and Commercial Bank of China (ICBC).
• Purpose:
  These funds will help Pakistan clear short-term domestic debt maturities and stabilize its foreign exchange reserves as required by the International Monetary Fund (IMF).
• Currency:
  While previous loans were often in US dollars, this time the financing is expected to be denominated in Chinese yuan (RMB), reflecting China’s broader strategy to reduce reliance on the dollar.

Impact on Pakistan’s Economy

• Reserves Boost:
  With current reserves at $11.7 billion (as of June 13, 2025), the incoming $3.3 billion will push reserves above $14 billion by the end of June, with some estimates suggesting a peak near $15 billion before accounting for outflows.
• Debt Management:
  The inflow will enable the government to generate approximately Rs 924 billion, helping to clear maturing short-term domestic debt in early July.
• IMF Requirements:
  Maintaining reserves above $14 billion is a key commitment under Pakistan’s ongoing IMF program, ensuring continued access to international funding and support.

Strategic and Diplomatic Significance

• China-Pakistan Economic Partnership:
  This financial support underscores the deepening economic ties between Pakistan and China, especially under the China-Pakistan Economic Corridor (CPEC), which has seen over $60 billion in investments since its launch in 2013.
• Prime Minister’s Statement:
  Prime Minister Shehbaz Sharif has publicly expressed gratitude to China for its consistent financial support, crediting Beijing with helping to stabilize Pakistan’s economy and improve its macroeconomic outlook.

Challenges and Considerations

• Interest Rates:
  The syndicated loan is expected to carry a floating interest rate, though final terms are still being negotiated5.
• Currency Risk:
  With loans likely in RMB, Pakistan may face new currency management challenges but will benefit from reduced exposure to dollar volatility.

What’s Next?

• Finalization:
  Officials expect both loans to be finalized and disbursed before June 30, 2025, ensuring Pakistan meets its fiscal year-end targets.
• Future Outlook:
  The successful inflow will provide temporary relief, but Pakistan will need to continue structural reforms and seek further investment to maintain economic stability.