State Bank receives $1.3bln in loans from Chinese banks

KARACHI: Pakistan has bagged $1.3 billion in loans from Chinese financial institutions, the central bank said on Tuesday, indicating an easing pressure on the country’s balance of payments position and a subsequent support to falling rupee.

“SBP has received $1.3 billion as GOP (government of Pakistan) loan disbursements from Chinese banks this week,” the State Bank of Pakistan (SBP) said in a tweet. “This brings the total amount of official inflows received since 23rd June 2020 to around $3 billion.”

The latest inflows came on the heels of loans of $1.725 billion received from the World Bank, Asian Development Bank and Asian Infrastructure Investment Bank to address the challenges posed by the coronavirus pandemic.

Analysts said the Chinese loan would pump the SBP’s foreign exchange reserves. This would help the government service its debt and provide much-needed support to balance of payments, they said.

“This is a positive development for the external account sector and will help bolster the country’s reserves for the June end closing,” said Saad Hashemy, executive director at BMA Capital. “The fresh disbursements are expected to help the government close a gaping budget deficit and tackle the economic shocks from the COVID-19.”

Like many other global economies, Pakistan’s economy faltered in the aftermath of corona-induced lockdown imposed in late March. The growth contracted by 0.4 percent this fiscal year and the recovery is expected to be a tad slow. The country is expected to have another year of negative growth this fiscal year, according to the World Bank’s projection, while fiscal deficit is projected at 9.4 percent above the government’s ambitious target of 7 percent.

Hashemy said the direction of the rupee would depend on export proceeds that have fallen to decade lows in recent months. Exporters are unanimous that annual exports wouldn’t cross the $20 billion mark in FY2020. There is an average $2 billion worth of goods exported every month. Since exports are expected to be hurt for at least two months, $4 billion loss is obvious, they said. The central bank said even the rate cut couldn’t “prevent the near-term fall in economic activity due to lockdowns”.

Pakistan’s foreign exchange reserves increased to $19.73 billion following the fresh disbursements from $14.76 billion as of June 30, 2019. The reserves held by the SBP rose to $12.96 billion from $7.28 billion at the end of June last year. The country received $7.5 billion in foreign loans in the 11 months of last fiscal year 2019/20, showing a sharp rise in the borrowing requirements of the government. The duration of these loans hovers from 15-25 years. Total foreign borrowing in 2019/20 is expected to be around $10 billion, lower than the budgetary target of $13 billion. Most of the loans will be used to make debt repayments and build foreign exchange reserves. The annual debt repayments are estimated at $10.4 billion in FY2020. The country planned to seek $15 billion in foreign loans during this fiscal year.

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