China Reschedules $1.8 Billion of Pakistani Debt Amid IMF Reserve Commitments
In a crucial development for Pakistan’s ongoing IMF programme, China has agreed to reschedule $1.8 billion in concessional and preferential loans for a period of two years. Although the figure is about half of the $3.4 billion originally requested, it remains vital for Islamabad to meet its $13.9 billion foreign exchange reserves target by the end of the current fiscal year.
What Has Been Agreed?
The debt restructuring covers government concessional loans and preferential buyer credit from the Export-Import (Exim) Bank of China. However, Beijing has declined to reschedule buyer’s credit loans, narrowing the scope of relief to $1.8 billion—expected to be finalized by July 2025.
“These loans were taken for various infrastructure and energy projects and are separate from commercial financing,” said officials familiar with the matter.
This would be the second major debt rescheduling by China in two years, following the $2.43 billion debt rescheduling in July 2023.
What’s at Stake?
Pakistan’s foreign exchange reserves temporarily dipped below $10 billion last week due to bullet repayments of $2.1 billion to China. However, reserves are expected to rebound to over $13.9 billion once the funds are refinanced.
According to Finance Minister Muhammad Aurangzeb, the reserves will cross $14 billion before the fiscal year ends on Monday, June 30, 2025. The IMF requires this benchmark to keep the $7 billion Extended Fund Facility on track.
IMF’s $5 Billion Financing Gap and China’s Role
Under the IMF agreement, Pakistan was required to plug a $5 billion external financing gap. Islamabad had approached China to restructure $3.4 billion in Exim Bank debt spanning October 2024 to September 2027. However, negotiations led to a trimmed-down agreement excluding buyer’s credit.
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Key Conditions from China:
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Only concessional and preferential buyer credits to be rescheduled
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Buyer’s credit excluded due to complexity
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Loans to be converted from USD to Chinese yuan
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Rescheduling window reduced to July 2025–June 2027
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Pakistan continues interest payments
Challenges and Criticism
Opposition lawmakers and economic analysts have voiced concern over transparency and long-term implications, especially as debt reliance grows.
The Ministry of Finance has not formally responded to media queries, and insiders note China’s proposal to limit the restructuring to a smaller window of maturities—from September 2025 to September 2027—was rejected by Islamabad.
Additional Financing in Pipeline
To stabilize reserves and meet IMF benchmarks, Pakistan also expects:
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$3.7 billion in commercial loans from China to be refinanced
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$1 billion from a non-Chinese lender backed by ADB
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$415 million in separate facility disbursements
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$13 billion of bilateral deposits to be rolled over in FY2025
These inflows are crucial to maintain macroeconomic stability and investor confidence.
Final Thoughts
China’s partial rescheduling of Pakistani debt provides essential breathing room, but the limited scope of relief also underlines the urgency for Pakistan to diversify its financing sources and reduce over-reliance on bilateral bailouts. As Pakistan eyes IMF compliance and macroeconomic stability, each refinancing deal will play a pivotal role in navigating its debt-laden fiscal path.
