Pakistan's 'all-weather' ally China bails out debt-ridden country to repay Saudi loan

China has again bailed out its all-weather ally and debt-ridden Pakistan as it has agreed to provide USD 1.5 billion financing line to repay the USD 2 billion Saudi Arabia debt, according to Express Tribune. Imran-Khan led Pakistan is set to return the USD 1 billion on Monday and remaining USD 1 billion is due in January, sources in the Finance Ministry told Tribune.

The report noted that this time China has not provided the loan from its State Administration of Foreign Exchange commonly known as SAFR deposits nor it has given a commercial loan to Islamabad. This time both the countries have agreed to increase the size of a 2011 bilateral Currency-Swap Agreement (CSA) by an additional 10 billion Chinse Yuan or around USD 1.5 billion, the sources said.

China has become Pakistan's largest creditor

This has increased the size of the overall trade facility to 20 billion Chinese Yuan or USD 4.5 billion. The benefit of this arrangement will be that the additional USD 1.5 billion Chinese loans will not reflect on the book of the federal government and it will not be treated as part of Pakistan's external public debt. Earlier in November, it was reported that Pakistan has decided to seek USD 2.7 billion loans from China for the construction of package-I of the Mainline-1 project of China Pakistan Economic Corridor (CPEC).

Pakistan paid Pakistani Rs 20.5 billion in interest to China on using the USD 3 billion trade finance facility in the last fiscal year alone, showed the central bank's financial statement. China has become Pakistan's largest creditor for the past few years. The trade facility, originally meant to promote bilateral trade in respective local currencies, has been used for paying foreign debt. The USD 3 billion money is part of the current USD 13.4 billion in foreign currency reserves held by the central bank, the State Bank of Pakistan (SBP) had confirmed to The Express Tribune last month.

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Saudi demands its money back

According to news agency ANI, Pakistan Prime Minister Imran Khan had visited Saudi Arabia twice to secure a loan. Saudi Arabia had agreed to provide USD 6.2 billion worth of financial package to Pakistan for three years. This included USD 3 billion in cash assistance and USD 3.2 billion worth of annual oil and gas supply on deferred payments. As per the agreement, the Saudi cash and oil facility was for one year with an option to roll over the amount at the end of the year for a period of three years.

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However, Saudi Arabia has claimed back its money ahead of the schedule. Pakistan was paying 3.2% interest on the USD 3 billion facilities, according to the information that the Ministry of Finance shared with the National Assembly. The Saudi oil facility has already been suspended. While Pakistan has also paid back Saudi Arabia USD 1 billion out of the $3 billion in May this year. Pakistan returned $1 billion to Saudi Arabia after taking an equal amount of loan from China. The government has also not been able to get the suspended USD 6 billion IMF programme restored, which is making it difficult for it to continue uninterrupted foreign inflows.

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(With agency inputs)