Narrative
Full Description
Project narrative
On March 23, 2018, the People's Bank of China signed an agreement with the State Bank of Pakistan to provide a $2 billion loan — via China’s State Administration of Foreign Exchange (SAFE) — to shore up the country’s foreign exchange reserves (as captured via Record ID#73343). The loan carried the following borrowing terms: a 1-year maturity, a 1-year grace period, and an interest rate of 12-month LIBOR plus a 1% margin. The loan fully disbursed. Then, on March 23, 2019, the $2 billion SAFE deposit loan from 2018 was repaid and reissued (i.e. 'rolled over') with a maturity date of March 23, 2020 (as captured via Record ID#92087). One year later, on March 23, 2020, the $2 billion SAFE deposit loan from 2019 was repaid and reissued (i.e. 'rolled over') with a maturity date of March 23, 2021 (as captured via Record ID#97848). Then, on March 23, 2021, the $2 billion SAFE deposit loan from 2020 was repaid and reissued (i.e. 'rolled over) with a maturity date of March 23, 2022 (as captured via Record ID#97849). Then, on March 23, 2022, the $2 billion SAFE deposit loan from 2021 was repaid and reissued (i.e. 'rolled over') with a maturity date of March 23, 2023. Then, on March 23, 2023, the $2 billion SAFE deposit loan from 2022 was repaid and reissued (i.e. 'rolled over') with a maturity date of March 23, 2024 an interest rate of 6-month SOFR plus a 1.715% margin (as captured via Record ID#97852). In January 2024, Pakistan's Caretaker Prime Minister Anwaarul Haq Kakar sent a letter to Chinese Premier Li Qiang, requesting the the $2 billion SAFE deposit loan be 'rolled over' on March 23, 2023 for another year. After initially requesting that the borrower pay a higher interest rate, SAFE reportedly agreed to reissue (i.e. 'roll over') the $2 billion deposit loan for an additional year at the same interest rate (6-month SOFR plus a 1.715% margin) in late February 2024 (as captured via Record ID#102316).
Staff comments
1. AidData has estimated the all-in interest rate (6.355%) by adding 1.715% to average 6-month SOFR in March 2023 (4.64%). 2. Until 2018, all SAFE loans were managed by the State Bank of Pakistan (SBP). However, during the 2018-2019 fiscal year, the loans were reclassified and are now under the aegis of the Economic Affairs Division (EAD). 3. June 30, 2023 marked the cessation of the USD LIBOR panel. SOFR then became the dominant interest rate benchmark for USD-denominated borrowings. 4. According to an April 4, 2023 report from the National Assembly of Pakistan, ‘[a]ll of Chinese commercial bank maturities during FY23 will be rolled over. Chinese authorities have assured the rollover of SAFE deposits, refinancing of bank loans and increase in the SWAP line from RMB 30 billion to RMB 40 billion. Government has recently received US$ 700 mn from CDB and further inflows are in pipeline from ICBC.’ See https://na.gov.pk/uploads/documents/questions/642d26d720755_869.pdf