Pakistan economic crisis: Pakistan has received $700 million from the China Development Bank to bolster the country's foreign exchange reserves, which have been under strain due to external debt. Pakistan's Finance Minister, Ishaq Dar, described the deposit as a "lifeline" for the country. The deposit will provide much-needed relief to Pakistan, which has foreign exchange reserves of $3.25 billion as of February 17, barely enough to cover less than three weeks' worth of imports.
The coalition government has been trying to increase foreign exchange reserves, but the delay in reviving the $6.5 billion International Monetary Fund (IMF) programme has hindered these efforts. Pakistan is also looking to refinance two commercial loans worth $500 million and $800 million and aims to refinance Chinese loans up to $2 billion by the end of February or the first week of March 2023, according to various reports.
The deposit from China is expected to alleviate some of the economic pressure on Pakistan, which has been grappling with the pandemic and external debt. The country's external debt servicing obligation for the fiscal year 2022-23 is $23 billion, with $6 billion already repaid and $4 billion rolled over, leaving $13 billion yet to be financed. In addition, Pakistan has further repayment obligations of $75 billion during FY24-26.
Pakistan is requesting additional loans from Saudi Arabia and China to revive the IMF program and address its economic, political, and security challenges. It has been reported that Pakistan is facing its most difficult situation in two decades due to a drain on resources caused by the economic crisis, political instability, and increased terrorist attacks in northwestern areas. The country's economic decline is also affecting its citizens directly.
Recently, floods in Pakistan caused significant losses, with, agriculture, food, livestock, and fisheries sectors losing USD 3.7 billion and long-term losses estimated at USD 9.24 billion. In December 2022, inflation in the country reached 24.5%, almost double the previous year's rate of 12.3%, causing the common people to be most affected by the high prices of flour, worsening the country's food crisis.
Q1: Why did Pakistan receive $700 million from the China Development Bank?
Pakistan received $700 million from the China Development Bank to bolster its foreign exchange reserves, which have been under pressure due to external debt.
Q2: What is the purpose of the deposit from China?
The deposit from China is expected to provide relief to Pakistan, which has been grappling with the pandemic and repayment obligations, and to increase the country's foreign exchange reserves.