China Approves Rescheduling of $1.8B Debt for Pakistan

In a significant boost to Pakistan’s economic stability, China has agreed to reschedule $1.8 billion in concessional loans and preferential credit, supporting Islamabad’s efforts to meet foreign financing benchmarks set by the International Monetary Fund (IMF) under the ongoing program.

The agreement provides vital financial breathing space for Pakistan as it seeks to manage its external obligations and avoid default risks amid rising economic challenges.

• China has approved rescheduling $1.8 billion of concessional loans and preferential buyer credit.

• The rescheduling period will cover two years, from July 2025 to June 2027.

• Pakistan will continue paying interest on these loans despite the rescheduling.

• The arrangement helps Pakistan shore up its foreign exchange reserves, which recently fell below $10 billion.

• The initial request was for $3.4 billion in rescheduling, but the final agreement excludes the buyer’s credit loans portion.

The debt rescheduling comes at a crucial time:

• Pakistan had recently repaid a $2.1 billion loan to China, putting pressure on its foreign reserves.

• The $1.8 billion rescheduling deal will help prevent any immediate default risks.

• The measure is part of Pakistan’s broader efforts to bridge a $5 billion external financing gap identified by the IMF for its current program.

• This relief is expected to support financial stability and aid in fulfilling IMF conditions.

• The rescheduling and expected refinancing of Chinese loans are projected to push Pakistan’s reserves up to $14 billion by the end of June 2025.

• Pakistan is also expecting a $1 billion disbursement from the Asian Development Bank (ADB) to further strengthen reserves.

• Additional bilateral deposit rollovers of around $13 billion from partner countries are anticipated to meet IMF commitments.

• The agreement covers only government-to-government concessional lending and preferential credit.

• It focuses on loans used for infrastructure and development projects.

• Buyer’s credit loans—used for specific projects—were left out of the final deal after prolonged discussions.

China remains one of Pakistan’s most important financial supporters:

• The rescheduling deal highlights Beijing’s ongoing backing as Islamabad navigates nearly $20 billion in external debt obligations for the upcoming fiscal year.

• This support comes as Pakistan works to meet IMF benchmarks tied to its three-year program.

Pakistan will focus on securing other refinancing arrangements to fill its financing gap.
Attention will also turn to ensuring structural reforms as demanded by the IMF.
Further talks may be required to resolve the buyer’s credit loan issue, which remains pending.