KARACHI: Pakistan's Finance Minister Ishaq Dar announced on Thursday that China has rolled over a loan of $2.4 billion for a period of two years, though financial experts believe Islamabad’s reliance on Beijing for financial relief may pose risk to the economy and hamper its growth in future.  

Cash-strapped Pakistan received $4.2 billion this month, which included $2 billion from Saudi Arabia, $1 billion from the United Arab Emirates (UAE), and $1.2 billion from the International Monetary Fund (IMF) after the international lender approved $3 billion for Pakistan under a Standby Arrangement (SBA).  

Pakistan has been struggling to contain an economic meltdown after its currency underwent massive devaluation against the US dollar and its reserves dropped to record levels amid mounting external debt. 

"Chinese EXIM Bank has rolled over for 2 years principal amounts of following loans totaling US$2.4 billion which are due in next 2 fiscal years,” Dar said in a post on X, previously known as Twitter.  

The finance minister explained Islamabad will get $1.2 billion during the current fiscal year, FY24, from Beijing while the remaining $1.2 billion will be due in FY25.  

“Pakistan will make interest payments only in both years,” Dar revealed, indicating that the principal amount had been waived.  

Last week, Prime Minister Shehbaz Sharif announced China had rolled over a $600 million loan, addition to $5 billion that Beijing gave to Islamabad in the last three months to avoid a sovereign defaut.

Pakistan expects $25 billion in gross new external financing during the current fiscal year FY24 against $15 billion in public debt maturities, including $1 billion in bonds and $3.6 billion that the South Asian country has to pay to multilateral creditors.

The government funding target includes $1.5 billion in market issuance and $4.5 billion in commercial bank borrowing, both of which could prove challenging, although some of the loans not rolled over in FY23 could now return, credit rating agency Fitch Ratings said.

Official financing for FY24 includes $10 billion as rollovers of existing and $5.6 billion in additional financing commitments, including from China, Qatar, Saudi Arabia, UAE, and International Financial Institutions (IFIs) such as the World Bank, Asian Development Bank, and the Islamic Development Bank, according to the IMF.

However, Pakistan's financial experts believe the Chinese rollovers and their impact on the national economy have significant consequences, both in the immediate and long term.

“In the immediate term, the rollovers of Chinese loans provide a temporary relief to Pakistan's balance of payments and foreign exchange reserves,” Ali Nawaz, CEO of Chase Securities, a financial services company, told Arab News.

The rollovers involve extension of loan repayment deadlines, reducing immediate burden on Pakistan's finances and providing breathing space for the country to address its short-term liquidity challenges.

“However, relying heavily on such rollovers can lead to increased debt dependency on China, potentially exacerbating Pakistan's debt sustainability concerns and in the long term, continuous reliance on Chinese rollovers may pose several financial risks for Pakistan's economy," Nawaz warned.

Nawaz said Pakistan's debt obligations to China may become increasingly burdensome in the years to come, putting an additional strain on the country's fiscal position.

“Such heavy reliance on Chinese financing could potentially limit Pakistan's fiscal policy autonomy and undermine its sovereignty in economic decision-making,” he said.

The terms and conditions of these rollovers may not always be as favorable as market-based loans, Nawaz explained, which could potentially lead to less advantageous terms for Pakistan in future.

Senior economist Dr. Abdul Jabbar Khan agreed.

“These are short-term measures but for long-term sustainable economic growth, the country would have to come up with a sound policy that could lead to exportable surplus,” Khan told Arab News.

“Without a good economic policy, you are not going to achieve required growth that the country at present needs to accommodate a growing population through job opportunities,” Khan said.

He said Pakistan hasn't had a sound economic policy in the last 40 years.

Both experts said to mitigate long term risks, Pakistan needs to focus on diversifying its sources of finance, attract foreign direct investment, and implement structural reforms to enhance economic productivity and reduce debt vulnerabilities.