ISLAMABAD: China has rolled over $2.4 billion in loans to Pakistan for two years that were up for repayment in FY24 and FY25, Finance Minister Ishaq Dar announced on Thursday.

“Chinese EXIM Bank has rolled over for two years principal amounts of following loans totalling $2.4bn — which are due for repayment $1.2bn each in FY24 and FY25,” he said, adding that Pakistan will make interest payments only in both years.

Informed sources said the loans had been extended to power projects, mostly two Karachi-based nuclear power plants (K2&K3) of 1,100MW each now supplying electricity to the national grid and some repayments were due in the first quarter of the current fiscal year.

Now, the principal loans would remain paused for repayment while interest payments would continue.

China has repeatedly helped Pakistan survive the low reserves position in recent months through debt rollovers while Islamabad was struggling to win over a staff-level agreement with the International Monetary Fund (IMF) over the past one year.

The fresh rollover will support authorities in building foreign exchange reserves beyond the current critical level.

The federal cabinet has already approved the revised terms of the grace period of all 31 loan agreements (guaranteed+ central), contracted with China EXIM Bank which are now stand extended by two years from July 21, 2023 to June 30, 2025.

An option of re-arrangement of scheduled payments of 31 loans (guaranteed and central), amounting to approximately $2.4bn (principal amount), due between the period July 2023 and June 2025, was taken up with the EXIM Bank.

The proposal contained an extension of the maturity period tenure of each loan, contracted with EXIM Bank, China, by two years as a grace period. During the grace period, the interest payment would be made to the EXIM Bank China, whereas, repayment of the principal amount would be deferred for two years.

The bank, with, some minor amendments, agreed to the proposal and suggested that the grace period, interest, that the Government of Pakistan may take up the re-arrangement of 31 loans (excluding one syndicate loan) formally, with the Government of the People’s Republic of China.

Meanwhile, a formal request was submitted to the Chinese Government. After a formal request, the re-arrangement proposal was negotiated with the concerned authorities of the Chinese Government and EXIM Bank of China. Formal approval of the Government of China had been conveyed to the Economic Affairs Division (EAD) by the EXIM Bank on July 17, 2023.

“The grace period of all 31 loan agreements (guaranteed+ central), contracted with China EXIM, Bank, is extended with 2 years from July 21, 2023 to June 30, 2025”, the EAD reported.

The maturity period will be extended by two years correspondingly. Similarly, it has also been approved that the repayment of principals due and payable during the 2-year grace period would remain deferred under the loan agreements.

The government of Pakistan is obliged to pay interests accrued on the amount outstanding, during the 2-year grace period at the same interest rate as set in the original loan agreements; and after the end of the 2-year grace period, GoP is obligated to pay all the principal amount outstanding, all the interest accrued thereon and such other amount payable by Pakistan under the terms and conditions of the original loan agreements.

Published in Dawn, July 28th, 2023