Pakistan's foreign exchange slides, China steps in

Pakistan's liquid foreign exchange net reduced $ 5.8 billion to reach $10.3 billion, the country's state bank said.

The reserves are barely enough for two months of imports and are below the International Monetary Fund's(IMF) adequacy levels. 

The monetary committee of Pakistan's state bank while unveiling the report said the need for "deep-rooted structural reforms" to improve the country's competitiveness can hardly be overemphasized for medium to long-term sustainability of balance of payments. 

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Meanwhile, China has agreed to roll over a loan of $ 500 million that it has placed with the State Bank of Pakistan as Islamabad's official foreign currency reserves remain in a precarious position despite taking $ 44 billion in loans in the past five years.

The Monetary committee said the currency swap arrangement between State Bank of Pakistan (SBP) and People's Bank of China (PBOC) has been extended for a period of 3 years in respective local currencies. 

Both the central banks have agreed to increase the amount from 10 billion yuan to 20 billion yuan and from 165 billion rupee to 351 billion rupee. 

Pakistan cannot use the $ 500 million Chinese deposit and its only purpose is to shore up foreign currency reserves. The loan has been rescheduled at the same old terms since the money could not be utilised, the interest rate was only 1 per cent.

During the week ended May 18, the SBP's gross reserves dropped $479 million to only $10.32 billion due to payments on account of external debt servicing. 

Pakistan has already taken $2.2 billion in commercial loans from China in the current fiscal year. It is also holding negotiations to take $200-350 million in commercial loans from Gulf banks.