China has reportedly swooped in to help Pakistan pay off a debt yet again, by agreeing to immediately provide $1.5 billion in financing to pay off the $2 billion Saudi Arabia debt.
According to a report, Pakistan will be paying up $1 billion out of the $2 billion debt today, while the remaining $1 billion is due in January. This information was provided by sources in the finance ministry and the State Bank of Pakistan (SBP).
China has agreed to bail out Pakistan, but it is neither giving out State Administration of Foreign Exchange (SAFE) deposits, nor is it extending commercial loans.
Instead, both countries have reached an agreement to augment the size of a 2011 bilateral Currency-Swap Agreement (CSA) by an additional 10 billion Chinese yuan, or approximately $1.5 billion. This has consequently increased the size of the overall trade facility to 20 billion Chinese yuan or $4.5 billion.
Signed between the SBP and the Peoples Bank of China (PBOC) back in December 2011 ”to promote bilateral trade”, the CSA is a trade finance facility that has been used by Pakistan ever since to repay its foreign debt and maintain comfortable levels of gross foreign currency reserves.
The advantage Pakistan stands to gain from utilizing this facility is that the extra $1.5 billion Chinese loan will not reflect on the book of the federal government and it will not be treated as part of the nation’s external public debt