Chinese state banks have pledged $2.3bn to the State Bank of Pakistan to save the country from potentially defaulting on its outstanding international debt, amid declining confidence in its repayment ability. According to FT, the Chinese loan will help increase Pakistan’s foreign exchange reserves from $8.2bn to $10.5bn and could help prevent the Pakistani rupee from further dropping against western currencies. FT notes that coupled with a 10% super tax imposed on important industries (cement, beverages, steel, tobacco and chemicals) in Pakistan, the borrowings are meant to prompt the IMF to resume a previously stalled $6bn IMF loan package. While Pakistan began to receive payments from IMF in 2019, the multilateral lender has only provided about half of the $6bn agreed thus far with the remaining in limbo due to economic and political factors. FT adds that China, who is Pakistan’s close economic and military ally, has encouraged the nation to repair ties with IMF because it is “an essential step to improve Pakistan’s economic health and avoid a default”.

Pakistan’s 5.625% 2022 sukuk are trading flat at 93.87 at a yield of 20.97%.

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