China agrees to provide USD 1.5 bln loan to Pakistan to repay Saudi debt

December 14, 2020 (MLN): China has agreed to immediately provide $1.5 billion financing line to Pakistan to help the country repay the $2 billion Saudi Arabia debt.

The sources in the Ministry of Finance told Express Tribune on Sunday that out of $2 billion, Pakistan is now set to return the $1 billion on coming Monday and the remaining $1 billion is due in January.

As per the media group, China has not given the loan from its State Administration of Foreign Exchange, commonly known as SAFE deposits, nor has it extended a commercial loan. Instead, this time, China is providing the $1.5 billion loan by increasing the size of 2011 bilateral Currency-Swap Agreement (CSA), by an additional 10 billion Chinse Yuan or around $1.5 billion in dollar term.

CSA is a Chinese trade finance facility that Pakistan has been using since 2011 in order to repay foreign debt and keep its gross foreign currency reserves at comfortable levels instead for trade-related purposes.

This has augmented the size of the overall trade facility to 20 billion Chinese Yuan or $4.5 billion, the news agency reported.

The advantage of this agreement will be that the additional USD 1.5 billion Chinese loan will not reflect on the book of the federal government and it will not be treated as part of Pakistan’s external public debt.

To note, this is the second time China has come to Pakistan's salvage. Earlier this year, Pakistan repaid $1 billion of the $3 billion loans taken from Saudi Arabia in the first quarter of the ongoing fiscal year.  

In 2018, Saudi Arabia had agreed to provide USD 6.2 billion worth of financial package to Pakistan for three years. This included USD 3 billion in cash assistance for a year and USD 3.2 billion worth of annual oil and gas supply on deferred payments.

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