Pakistan seeks bigger China currency swap, awaits US decision on $10B facility

Pakistan plans to seek an expansion of its 30 billion yuan ($4.2 billion) currency swap arrangement with China when the facility expires in 2027, Reuters reported on Thursday, citing Finance Minister Muhammad Aurangzeb.

Islamabad also expects a decision from Washington within two months on a proposed $10 billion exchange stabilization facility.

Why is Pakistan seeking more financing from China and the US?

Pakistan remains dependent on external financing to strengthen its foreign exchange reserves and meet debt repayment obligations. Support from China, Gulf states and multilateral lenders continues to play an important role in economic stability and investor confidence, according to the Reuters report.

Aurangzeb said Pakistan had fully drawn the existing 30 billion yuan swap line with China and would formally request an increase when the arrangement comes up for renewal. "They were open to it, but there is a process which has to be followed," he told Reuters, referring to recent discussions with his Chinese counterpart and the governor of China's central bank. "We do plan to make a formal request at the time of the renewal," he said, without specifying how much additional financing Pakistan would seek.

When will the US decide on Pakistan's $10 billion facility request?

Pakistan expects a response within two months to its request for a $10 billion exchange stabilization facility from Washington, Aurangzeb said. Islamabad is also in talks with the US Export-Import Bank and the US International Development Finance Corporation, according to Reuters.

EXIM financing could potentially support aircraft purchases from Boeing by Pakistan International Airlines following the national carrier's privatization. DFC financing could help fund a planned $5 billion program to upgrade Pakistan's oil refineries. Asked whether seeking greater financial support from both China and the United States could create concerns, Aurangzeb described Pakistan's approach as an "and-and" discussion.

"China has been a long-standing strategic partner for us... and we have very good at the leadership level now understanding and relationship with the Trump administration," he said. "We are very fortunate to have this kind of relationship with both important economic and superpowers," Aurangzeb added. The US Treasury, DFC and EXIM did not immediately respond to Reuters' requests for comment.

How are oil prices affecting Pakistan's economic outlook?

Aurangzeb said Pakistan had managed the initial surge in crude oil prices following US and Israeli strikes on Iran relatively well, but warned the outlook had become more uncertain as the conflict in the Middle East continued. "If this conflict goes into, unfortunately, November or December, you know, this is something which will be an area of concern for us," he said.

A prolonged disruption could put the government's 4 percent economic growth target for the fiscal year at risk, Aurangzeb said. Pakistan had secured enough oil stocks to meet its requirements through September and was well positioned for October, according to the minister. He said an institutionalized mechanism was reviewing the situation daily, while planning for November supplies had already begun.

Is Pakistan seeking additional IMF financing?

Despite the external pressures, Aurangzeb said Pakistan currently had no plans to seek additional financing or emergency assistance from the International Monetary Fund. "As of now, our considered view is that it's manageable," he said.

An IMF mission is scheduled to arrive next week for the fourth review of Pakistan's $7 billion program and the third review of its Resilience and Sustainability Facility. "From our perspective, we are in good stead with the quantitative benchmarks, and we are largely compliant with the structural benchmarks," Aurangzeb said, according to Reuters.