A consortium of Chinese state banks has lent $2.3bn to Pakistan to help the country stave off a foreign payments crisis, finance minister Miftah Ismail said on Friday.
Confirmation of the support from China, a close economic and military ally of Pakistan, came on the same day Islamabad announced a one-off 10 per cent ‘super tax’ on important industries that is intended to lead to a stalled $6bn IMF loan package being resumed.
“I am pleased to announce that Chinese consortium loan of Rmb15bn ($2.3bn) has been credited in to SBP [State Bank of Pakistan, Pakistan’s central bank] account today, increasing our foreign exchange reserves,” Ismail said in a tweet on Friday evening.
A senior government official said the arrival of the loan was “one of the signals that we’re about to return to the IMF programme”.
China had quietly urged Islamabad to repair ties with the IMF “as an essential step to improve Pakistan’s economic health and avoid a default”, the official said.
The Chinese loan will raise Pakistan’s liquid foreign reserves of $8.2bn to $10.5bn and could help shore up the rupee, which has slumped against western currencies.
Pakistan began to receive IMF payments in 2019 under a 39-month loan programme, but the fund has so far given only about half of the $6bn agreed.
In recent months, sliding confidence in Pakistan’s economy has prompted concerns it could follow Sri Lanka in defaulting on international debt.
Prime minister Shehbaz Sharif, who was elected by parliament in April following the ousting of rival Imran Khan, unveiled on Friday the new super tax to be levied on manufacturers of cement, beverages, steel, tobacco and chemicals.
“The government has decided to impose a 10 per cent ‘poverty alleviation tax’ on large-scale industries of the country,” Sharif tweeted.
Business leaders widely criticised the move and share prices on the Karachi Stock Exchange fell nearly 5 per cent after news of the tax emerged. Analysts said the decision would further fuel inflation, a central concern for households across Pakistan.
Zaffar Moti, a former KSE director, said: “This is a major setback for the economy. The government has decided to further tax those who are already paying their taxes.”