By Staff Reporter
ISLAMABAD: China has extended a critical financial lifeline to Pakistan by rolling over $3.4 billion in loans, a move that, alongside other recent inflows, is poised to lift the South Asian nation’s foreign exchange reserves above the $14 billion threshold mandated by the International Monetary Fund, a finance ministry source said on Sunday.
The package includes $2.1 billion that has sat in Pakistan’s central bank reserves for the past three years and a refinanced $1.3 billion commercial loan that Islamabad repaid two months ago. Pakistan has also secured $1 billion from Middle Eastern commercial banks and $500 million from multilateral lenders. “This brings our reserves in line with the IMF target,” the source said, underscoring the significance of the inflows.
The loans come at a pivotal moment for Pakistan, which has been grappling with dwindling foreign exchange reserves amid hefty debt obligations. The IMF, as part of a $7 billion bailout program, required Pakistan’s reserves to exceed $14 billion by the end of the fiscal year on June 30. Authorities have touted economic stabilisation through ongoing reforms tied to the bailout, but the pressure on reserves has intensified in recent weeks.
The urgency of China’s support was laid bare by a record $2.66 billion drop in reserves held by the State Bank of Pakistan (SBP) for the week ending June 20, 2025. The decline, the steepest in over three years, pushed SBP reserves to $9.06 billion, the lowest level since July 2024, eclipsing a previous record weekly fall of $2.9 billion in March 2022. Total liquid reserves, including those held by commercial banks, stood at $14.39 billion, with commercial banks holding $5.33 billion.
“The decline was primarily due to the Government of Pakistan’s external debt repayments, mainly commercial borrowings,” the SBP said in a statement on Friday. The central bank reported that reserves fell by $2,657 million to $9,064.5 million during the week, reflecting the strain of servicing external debt.
The SBP confirmed it has received $3.1 billion in commercial loans and more than $500 million in multilateral financing this week. “These inflows will be reflected in SBP’s FX reserves for the week ending on 27-Jun-2025,” it said, signaling an imminent boost to the central bank’s buffers.
China’s latest assistance reinforces its position as Pakistan’s largest bilateral creditor. Around 92% of Pakistan’s external debt is owed to multilateral and bilateral creditors, as well as international bonds. Earlier this year, on March 9, 2025, Beijing extended the repayment period of a separate $2 billion loan to Pakistan by one year, the finance ministry confirmed, further cementing its role as a key backer.
The fresh $3.4 billion rollover, combined with the $1.5 billion from Middle Eastern banks and multilateral lenders, is a lifeline for a country struggling to balance its external financing needs. The refinancing of the $1.3 billion commercial loan, in particular, eases immediate repayment pressures, while the $2.1 billion extension provides breathing room for longer-term reserves management.
The inflows align with earlier projections from SBP Governor Jameel Ahmad, who in April raised the bank’s forecast for reserves to $14 billion by June 2025, up from a prior estimate of $13 billion. Speaking at an event at the Pakistan Stock Exchange, Ahmad had expressed confidence in meeting the revised target. Yet the sharp decline in reserves this month had cast doubt on that outlook, amplifying the importance of the new loans.
With the latest disbursements set to bolster reserves in the coming week, Pakistan appears on track to meet the IMF’s $14 billion requirement. Still, the rollercoaster in reserves, plummeting to $9.06 billion before an expected rebound, highlights the fragility of its external position and the heavy reliance on foreign creditors like China to stay afloat.
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