ISLAMABAD, Pakistan – China on Thursday agreed to refinance Pakistan with USD2.3 billion worth of funds amid dwindling foreign exchange reserves of the country.

This came at a time restoration of the country’s delayed International Monetary Fund (IMF) programme depends on the government’s capacity to make a fiscal adjustment of about 2.5 per cent of the GDP.

The fiscal adjustments can be made by increasing the revenues and reducing the expenditure in the next budget, Geo News reported citing The News.

“Good News: The terms and conditions for refinancing of RMB 15 billion deposit by Chinese banks (about US$ 2.3 billion) have been agreed,” said Miftah Ismail, Pakistan’s Federal Minister of Finance and Revenue, in a tweet.

“Inflow is expected shortly after some routine approvals from both sides. This will help shore up our foreign exchange reserves.”

Pakistan’s foreign exchange reserves are under severe stress and declined by $190 million to $10.308 billion during the week ended on May 6, according to the State Bank of Pakistan (SBP).

The country is heavily dependent on foreign loans, as the Ministry of Economic Affairs data earlier this month showed that Pakistan received only $248 million in foreign loans in April, including $100 million worth of oil on deferred payments from Saudi Arabia.

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Pakistan is looking towards the International Monetary Fund (IMF) to restore a $6 billion package agreed upon in 2019. So far half of the promised money had been given. Pakistan would immediately get a $1 billion loan tranche from the IMF once the two sides sort out their differences, according to Indian express.

With the economy in tatters and political instability looming large due to protests by former prime minister Imran Khan, there is an increasing threat of Pakistan going the Sri Lankan way if quick measures are not taken.

The strategic cooperation between Pakistan and China has grown over the past several decades. Economically, China is Pakistan’s largest trading partner and a major investor, especially in infrastructure and energy sector. During 2018, bilateral trade between the two countries reached US$ 18 billion.

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