US extends Pakistan debt relief after floods

US extends Pakistan debt relief after floods

Washington on Friday extended an agreement to suspend $132 million in Pakistan’s debt after devastating floods exacerbated the economic crisis in the South Asian country, the US embassy in Islamabad said.

Pakistan’s economy is facing a balance of payments crisis, a widening current account deficit, currency falling to an all-time low, and inflation above 27%.

At the end of August, floods inundated large parts of the country, killing more than 1,500 people and causing damage estimated at $30 billion. The devastation has raised fears that Pakistan will default on its debt obligations.

US Ambassador to Pakistan Donald Bloom has signed an agreement to extend the loan forgiveness under the G20 debt service suspension initiative: “Our priority is to refocus critical resources in Pakistan.”

The extension relates to the April 2020 Paris Club agreement to support 73 low-income countries during COVID, under which the United States has provided $128 million in debt relief to Pakistan.

The agreement to suspend payments on this debt has now been extended, along with an additional $4 million.

A statement issued by the office of Pakistan Finance Minister Ishaq Dar after meeting with Chinese envoy Nong Rong said Islamabad also wants to transfer $2 billion in Chinese deposits to its reserves.

Dar asked the ambassador for his support in facilitating the extension of the $2 billion SAFE China deposit maturing in March 2023.

Beijing already refinanced the $2.24 billion syndicated loan to Pakistan earlier this year.

Muftah Ismail, Pakistan’s outgoing finance minister, said last week that Islamabad was seeking debt relief for bilateral creditors in the wake of the floods, but stressed that the government had not sought help from commercial banks or international bond creditors.

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State bonds only fell to half their face value after a United Nations development agency urged the money-needing country to restructure its debt, according to the Financial Times.

Ismail said the $1 billion bond will be paid on time and in full, due later this year. (Reporting by Asif Shehzad; Editing by Jean Harvey and David Gregorio)

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