China is a beaming lighthouse to Pakistan as the South-Asian country is sinking into an economic crisis. Commercial Bank of China (ICBC) approved a $1.3 billion (Rs 10,000 crore) rollover loan to Pakistan while the cash-strapped nation was in desperate need of funds on March 4.
Pakistan’s finance minister took to Twitter to announce the approval of the loan which is to be disbursed to the country in three instalments over the following months. The finance minister also said that the first instalment of $500 million has already been received by the State Bank of Pakistan. The amount will be used to replenish the country's depleting foreign reserves.
Pakistan had already received a $700 million loan from China to help manage its extinguishing foreign reserves. Pakistan’s increasing debt to China appears to be getting similar to Sri Lanka’s situation.
According to the reports in Reuters, the latest loan is a rollover of the debts Pakistan had repaid to China. The aid will give breathing room to the country that is on the brink of defaulting on its payments. Pakistan’s foreign exchange reserves had dropped to only $3.8 billion on February 24 which is estimated to be less than sufficient for a month’s imports as reported by Business Standard.
Pakistan’s approval for its IMF loan has reached the ninth round of review. The country is negotiating a $7 billion loan with the IMF as reported by the Dawn. But, the Pakistani government has been unsuccessful in getting the loan as it hasn’t met with IMF’s conditions to receive the bailout.
Pakistan is under a constant economic crisis since the devastating floods in June last year which caused damage worth $14.9 billion and economic loss worth $15.2 billion. The country has also been grappling with high inflation, sliding currency, depleting foreign exchange reserves and a widening in its current account deficits.
The base for inflation calculation, the consumer price index (CPI) has reached 31.5%, a record 50-year high, on an annual basis with inflation jumping to a steep 17.1% as reported by NDTV. The SBP has been constantly increasing interest rates with the latest increase of a record 20 per cent in a single day to meet the conditions specified by IMF as reported by NDTV.
China is a friend indeed to Pakistan as it has constantly bailed Pakistan over the years. Both countries share a special relationship which has grown for over 70+ years. Pakistan was among the first countries to acknowledge the People’s Republic of China as the sovereign and legitimate power over Mainland China. The countries have strong strategic partnerships for trade, economic and military relations. The countries have a strategic economic corridor called the China-Pakistan Economic Corridor (CPEC) with a highway connecting China with Central Asian Countries strengthening the ties between the two nations.
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