China lends Pakistan further $700 million to shore up FX reserves

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ISLAMABAD (Reuters) -Pakistan will this week receive a new $700 million loan from China to help shore up its foreign exchange reserves, the South Asian country’s finance minister said on Wednesday.

The credit facility, made through the state-owned China Development Bank will boost Pakistan’s forex reserves by about 20% and comes as the country is thrashing out a deal with the International Monetary Fund (IMF) to unlock funds from a $6.5 billion bailout crucial to stave off economic collapse.

“This amount is expected to be received this week by State Bank of Pakistan which will shore up its forex reserves,” Finance minister Ishaq Dar said on Twitter.

China Development Bank did not respond to a faxed request for comment.

Pakistan is struggling with its worst economic crisis in decades and its foreign exchange reserves, at their lowest in 10 years, are only enough to pay for less than three weeks’ worth of crucial imports. Meanwhile, fiscal adjustments demanded by the IMF are fuelling decades-high inflation.

China is already Pakistan’s single largest creditor and the United States, historically a close ally, said this week it was concerned about this debt, and was talking to Islamabad about the “perils” of a closer relationship with Beijing.China and Chinese commercial banks held about 30% of Pakistan’s total external debt of about $100 billion, according to an IMF report in September.Much of that debt has come under the China-Pakistan Economic Corridor, part of Beijing’s Belt and Road Initiative.

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