Narrative
Full Description
Project narrative
On January 23, 2009, China’s State Administration of Foreign Exchange (SAFE) provided a $500 million deposit loan to State Bank of Pakistan (SBP) in order to shore up the country’s foreign exchange reserves (and address the country’s weak current account situation). The loan, which was backed by a sovereign guarantee (from Pakistan's Ministry of Finance), carried the following borrowing terms: an interest rate of 6-month LIBOR pus a 1% margin, a 4-year maturity, and a 4-year grace period. The loan was repayable semi-annually and it was scheduled to mature on January 23, 2013. On January 23, 2013, the $500 million SAFE deposit loan from 2009 was repaid and reissued (i.e. 'rolled over') with a maturity date of January 23, 2014. Then, on January 23, 2014, the $500 million SAFE deposit loan from 2013 was repaid and reissued (i.e. 'rolled over') with a maturity date of January 23, 2015. One year later, on January 23, 2015, the $500 million SAFE deposit loan from 2014 was repaid and reissued (i.e. 'rolled over') with a maturity date of January 23, 2016. Then, on January 23, 2016, the $500 million SAFE deposit loan from 2015 was repaid and reissued (i.e. 'rolled over') with a maturity date of January 23, 2017. Rather than rollover for yet another year, the Government of Pakistan decided to repay the loan in 2017 due to the country’s strong macroeconomic performance and stable foreign exchange reserves position. Pakistan’s Finance Minister directed the SBP to make payment of $500 million to China’s State Administration of Foreign Exchange (SAFE) on January 23, 2017. The then-Prime Minister Muhammad Nawaz Sharif expressed his deep appreciation to the Chinese Government for the critical support it provided through the SAFE deposit, which had stabilized the country’s current account since 2009.
Staff comments
1. AidData has estimated the all-in interest rate by adding 1% to average 6-month LIBOR in January 2009 (1.622%). 2. The Fiscal Year 2011 Annual Report of SBP identifies ‘two long-term deposits of USD 500 million each received from the State Administration Foreign Exchange (SAFE) China carrying interest at six month LIBOR plus 1% payable semi-annually. Out of these, one deposit of USD 500 million has been set off against the rupee counterpart receivable from the Federal Government [of Pakistan via] letter dated March 26, 2009 between SBP and Federal Government whereby the Federal Government has agreed to assume all liabilities and risks arising from SBP's agreement with SAFE China.’ The Fiscal Year 2013 Annual Report of SBP identifies ‘two long-term deposits of USD 500 million each received from the State Administration Foreign Exchange (SAFE) China in January 2009 (rolled-over in January 2013) and June 2012 carrying interest at six months LIBOR plus 100 bps and twelve months LIBOR plus 100 bps respectively, both payable semi-annually. These deposits of USD 500 million each have been set off against the rupee counterpart receivable from the Federal Government and have been covered under Ministry of Finance (MoF) Guarantees dated February 7, 2013 and June 29, 2012 whereby the MoF has agreed to assume all liabilities and risks arising from the Group's agreement with SAFE China. Further, this also includes a deposit of USD 500 million received from SAFE in June 2008 carrying interest at six months LIBOR plus 100 bps payable semi-annually. The outstanding balance of this deposit is USD 100 million as on June 30, 2013 (2012: USD 200 million). This deposit is the direct liability of the [SDP].'