China has pledged to refinance $3.7 billion in commercial loans to Pakistan in Chinese yuan, supporting Pakistan’s foreign exchange reserves and economic stability amid ongoing financial challenges.
Pakistan, facing economic challenges, has received assurance from its strategic ally China to re-lend $3.7 billion in commercial loans denominated in Chinese yuan (RMB) before the end of June. This move aims to stabilize Pakistan’s foreign exchange reserves, helping keep them in double digits, according to government sources cited by The Express Tribune.
China’s financial support comes as part of a broader effort to decouple loan financing from the US dollar, aligning with Beijing’s policy to reduce reliance on the US currency. Unlike past loans that were sometimes extended in currencies other than the yuan, this time China has committed to providing loans exclusively in its own currency.
Pakistan has already repaid a $1.3 billion loan to the Industrial and Commercial Bank of China (ICBC) earlier this year, and the ICBC is expected to refinance the amount soon in yuan, pending some clarifications. The original loan was issued two years ago at a floating interest rate of about 7.5%.
The current foreign exchange reserves of Pakistan’s central bank stand at approximately $11.4 billion, boosted recently by a $1 billion IMF injection. The upcoming refinancing by China could raise reserves to around $12.7 billion, crucial for maintaining economic stability amid maturing loans.
A $2.1 billion syndicate loan from Chinese commercial banks, including the China Development Bank, Bank of China, and ICBC, is due for refinancing in June. The loans will be extended for three more years in yuan, with interest rate terms still under negotiation between Pakistan and Chinese authorities.
Pakistan remains heavily dependent on China’s financial assistance, with existing Chinese cash deposits, commercial loans, and trade financing totaling billions of dollars. According to the IMF, Pakistan’s total foreign commercial loans stood at $6.2 billion as of December 2024, with $5.4 billion from China alone.
The Ministry of Finance has not officially confirmed the refinancing details, but the IMF report highlights continued support from key bilateral partners and limited external commercial financing access during the current program period. The IMF anticipates Pakistan’s gradual return to global bond markets starting fiscal year 2027, contingent on improved policy credibility.
