Miftah says $2.3bn refinancing agreement reached with Chinese banks

Finance Minister Miftah Ismail on Thursday announced that the government has reached a refinancing agreement worth $2.3 billion with Chinese banks, a move that would ease pressure on the external front and shore the country's dwindling foreign exchange reserves.

In a tweet, he said that “the terms and conditions for refinancing of RMB 15 billion deposit by Chinese banks (about US$ 2.3 billion) have been agreed".

"Inflow is expected shortly after some routine approvals from both sides. This will help shore up our foreign exchange reserves," the finance minister announced.

Pakistan is facing an unfavourable economic situation as it remains engaged in talks with the International Monetary Fund (IMF) over revival of a stalled Extended Fund Facility. In their last meeting, the IMF pointed out ‘deviations’ on fiscal sides from the policies agreed in the last review.

Resultantly, no staff level agreement was reached. The Fund emphasised the urgency of concrete policy actions, including in the context of removing fuel and energy subsidies and the fiscal year 2023 budget, to achieve programme objectives.

To show its commitment to reviving the programme, the government partially removed the fuel subsidy last week, and hiked the prices of petroleum products by Rs30 per litre.

The development comes as a massive relief to economic policymakers that saw foreign exchange reserves held by the State Bank of Pakistan (SBP) fall to $10.09 billion, with the level staying at less than 1.5 months of import cover.

The agreement with Chinese banks is expected to bolster the reserves and enable the country to make import payments, while lending some support to the rupee as well.

Moody's downgrade

Earlier, on Thursday, Moody's Investors Service (Moody's) had downgraded Pakistan’s outlook to negative from stable. It affirmed Government of Pakistan's B3 local and foreign currency issuer and senior unsecured debt ratings.

“The decision to change the outlook to negative is driven by Pakistan's heightened external vulnerability risk and uncertainty around the sovereign's ability to secure additional external financing to meet its needs,” it said.