Pakistan’s finance minister, Ishaq Dar, announced on Twitter that the country is set to receive a $700 million loan from the state-owned China Development Bank this week to help bolster its foreign exchange reserves by approximately 20%.
This loan comes at a critical time as Pakistan negotiates a deal with the International Monetary Fund (IMF) to access funds from a $6.5 billion bailout needed to prevent an economic collapse.
According to a finance ministry official, this loan is in addition to other loans already provided by China. Despite being historically allied with the United States, Pakistan’s closest and largest creditor is currently China, which holds roughly 30% of Pakistan’s total external debt of approximately $100 billion, with a significant portion of that debt linked to the China-Pakistan Economic Corridor, part of China’s Belt and Road Initiative.
Pakistan’s foreign exchange reserves are at their lowest level in a decade, barely enough to cover three weeks of critical imports, while the fiscal adjustments demanded by the IMF are fueling inflation to its highest level in decades.