Karachi: China has granted a one-year rollover of $2 billion in SAFE (State Administration of Foreign Exchange) deposits to Pakistan, which was going to mature by the end of the ongoing month.
The move was announced by Pakistan’s central bank, the State Bank of Pakistan, which said that the rollover was a sign of the strong economic ties between the two countries.
The SAFE deposits were initially made in 2016 as part of a currency swap agreement between China and Pakistan. Under the agreement, China agreed to provide Pakistan with $2 billion in foreign currency reserves to help stabilize the Pakistani economy, which was facing a balance of payments crisis at the time.
The rollover of the SAFE deposits comes at a critical time for Pakistan’s economy, which has been struggling with a rising trade deficit and a declining currency. The COVID-19 pandemic has also taken a toll on Pakistan’s economy, which is expected to contract by 1.5% in the current fiscal year.
The rollover of the SAFE deposits will provide Pakistan with much-needed breathing room as it tries to revive its economy. The move also underscores the importance of the economic relationship between China and Pakistan, which has been growing in recent years.
China has become one of Pakistan’s most important trading partners, with bilateral trade between the two countries reaching $15.6 billion in 2020. China has also invested heavily in Pakistan’s infrastructure, including the construction of the China-Pakistan Economic Corridor, which is a $62 billion project aimed at connecting China’s western region with Pakistan’s Gwadar port.
The rollover of the SAFE deposits is expected to further strengthen the economic ties between China and Pakistan and provide a boost to Pakistan’s struggling economy.
On Thursday, the media received a brief response from Finance Minister Ishaq Dar confirming the development.
It is worth noting that the Memorandum of Economic and Financial Policies (MEFP) provided by the lender outlines nine tables that must be fulfilled. One of these tables includes the Net International Reserves (NIR) as an indicative target, which cannot be achieved without factoring in the external financing requirements of the program until June 2023.
The lender has made it clear that external financing is a crucial step that Pakistan must take before the delayed funding can be released, which has been pending since late last year.