Pakistan Clears $1.4 Billion Chinese Loan, Awaits Refinancing Amidst Economic Rebalancing

Pakistan has successfully repaid a substantial $1.4 billion loan to Chinese commercial banks, marking a significant step in its debt management strategy. According to State Bank of Pakistan (SBP) Governor Jameel Ahmed, the refinancing of this loan is expected to be completed within a few weeks. This development is crucial as it comes at a time when Pakistan is navigating through a complex economic landscape, with a total of $2.2 billion in debt servicing for July alone, including $1.4 billion for the Chinese commercial loan and $800 million for other loans. The repayment has led to a decrease in the SBP-held foreign exchange reserves, which had peaked at $18.4 billion by July 3, 2026, before being reduced by the heavy loan repayments. As of July 17, 2026, Pakistan's total foreign exchange reserves stood at $22.6 billion, with $17.2 billion held by the SBP and $5.4 billion by commercial banks. The country is seeing a decline in foreign debt servicing, from $26.5 billion in the fiscal year 2024-25 to $21.5 billion in the current fiscal year 2026-27, attributed to declining interest rates. Out of the $21.5 billion, $3.5 billion will be interest repayments, with $12 billion consisting of deposits held with the SBP, and $3 billion expected to be refinanced commercial loans. The remaining $7 billion comprises other foreign debt obligations. Notably, $4 billion of the $12 billion deposits are from China, and $8 billion are from Saudi Arabia, with Pakistan requiring rollovers of deposits due in December 2026 and March 2027. The SBP governor highlighted that Pakistan had repaid $2.2 billion in debt servicing in the first month of the fiscal year, indicating lower pressure on foreign debt servicing obligations for the remaining months. Additionally, Saudi Arabia has rolled over $5 billion in deposits for three years, providing relief to Islamabad's external account. The central bank's strategy to build a buffer against economic shocks is evident from its $28 billion purchases from the interbank market over the last three years, including $9 billion in the last financial year.