ISLAMABAD: Pakistan has formally asked China to expedite the refinancing of a $1.3 billion commercial loan, with the funds expected to be disbursed later this month once terms are finalized, according to sources familiar with the matter.
Pakistani and Chinese authorities are working to complete the refinancing process as quickly as possible, the sources said, as Islamabad seeks timely support for its foreign exchange reserves following heavy external debt repayments in July.
The refinancing request comes after Pakistan repaid $2.2 billion in external debt during July, including the $1.3 billion Chinese commercial loan, the sources said.
Finance Ministry officials expect the refinancing to help offset part of the recent decline in foreign exchange reserves and provide additional liquidity as Pakistan continues to meet its external debt obligations.
Separately, the government expects the State Bank of Pakistan to purchase more than $7 billion from the interbank foreign exchange market during the current fiscal year, the sources said. The dollars purchased through the market are expected to be used to meet external debt-servicing requirements and strengthen the country’s foreign exchange reserves, they said.
Pakistan’s total liquid foreign exchange reserves stood at $22.442 billion as of July 24, according to the State Bank of Pakistan. Of that total, the central bank held $17.030 billion, while commercial banks held $5.412 billion.
The central bank’s reserves fell by $229 million during the week ended July 24, declining to $17.030 billion from the previous week because of external debt repayments, the bank said.
The anticipated refinancing from China is expected to provide relief to Pakistan’s reserves and strengthen external liquidity as the country manages its debt-servicing obligations while trying to maintain adequate reserve buffers.
Pakistan also seeking US support
Earlier this month, Pakistan asked the United States for a $10 billion exchange stabilization facility, according to two sources briefed on the matter. If approved, the facility could provide a lifeline for the cash-strapped South Asian economy. The request follows Pakistan’s role in brokering talks over the Iran war, which raised its diplomatic profile and stirred hopes that it could seek economic gains from Washington and other partners.
During a meeting with U.S. Treasury Secretary Scott Bessent, Pakistani Finance Minister Muhammad Aurangzeb raised the vulnerability of the country’s economy to regional geopolitical developments, his ministry said in a statement that did not mention the request for a stabilization facility. The ministry said Aurangzeb sought greater U.S. support for Pakistan’s access to international capital markets, higher foreign exchange reserves and improved sovereign credit ratings, and that both sides reaffirmed their commitment to deepening bilateral economic cooperation, promoting U.S. investment and advancing strategic projects.
Pakistan remains under a $7 billion International Monetary Fund program that has required politically unpopular tax increases, spending restraint and other reforms.
Exchange stabilization facilities are rare U.S. Treasury backstops, typically routed through the Exchange Stabilization Fund, that provide dollars, swaps or guarantees to support reserves and steady currencies. They differ from the permanent standing dollar swap lines the Federal Reserve maintains with some major central banks, which act as an international supply line of U.S. dollars to underpin financial stability. A 2025 package for Argentina was the first new foreign-government exchange stabilization facility since one for Uruguay in 2002, aside from Mexico’s long-standing swap line, which dates to the 1940s and is now sized at $9 billion.
Pakistan narrowly avoided default in 2023 with a $3 billion IMF standby arrangement and later secured the $7 billion Extended Fund Facility, along with a separate $1.3 billion loan to build resilience to climate change and natural disasters. But its reserves still depend on official financing, rollovers and deposits from China and Saudi Arabia.
