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Pakistan receives a $2.5 billion loan from China to supplement its foreign exchange reserves


July 14, 2022 ( Newswire) In times of financial crisis around the world, nowadays many countries suffer from economic downturns. Pakistan is no exception. The Chinese government has helped Pakistan once again, this time by offering $2.5 billion in assistance to bolster the fast decreasing foreign currency reserves of its cash-strapped all-weather ally after rolling over a $4.5 billion loan scheduled to be returned this year. After France agreed to postpone a $107 million loan to Pakistan under the G20 Debt Service Suspension Initiative (DSSI), China said that it would support Pakistan.

According to a press release from Pakistan's Economic Affairs Division, the agreement was signed by Minister of Economic Affairs Secretary Mian Asad Hayauddin and French Ambassador Nicolas Galey.

A $4.5 billion debt scheduled to be paid by Pakistan in March and a $2.5 billion loan to strengthen Pakistan's shrinking foreign currency reserves is among China's newest aid packages. Pakistan, after Sri Lanka, is the second nation in the subcontinent to be in a significant economic crisis.

Crisis in Pakistan, Forex, and stock markets

As we already stated, Pakistan is in a constant state of crisis. There was an extended political crisis in which Imran Khan refused to step down as prime minister until he was forced to do so and Shahbaz Sharif was sworn in. However, a severe economic downturn is currently looming over the nation. Prime Minister Shahbaz Sharif's new administration is scrambling to satisfy IMF bailout requirements, which include repaying $6.4 billion in debt over the next three years. Pakistan's foreign currency reserves are being depleted faster than expected since the cost of imported products is rising. The nation will go bankrupt if nothing is done.

As a result of this, the number of people who want to invest their money in the Forex or the stock market increases. However, here is one thing to consider, investors should take into account the difference between forex and stocks which will aid them to decide which one is the most suitable choice for them. It is also worth noting that nowadays these financial markets are affected by the global financial crisis as well. However, that doesn't mean that investors cannot get benefits from this volatile period. Many investors from Pakistan decided to start swing trading or scalping, which will help them to make money from even slight changes in the price. As Pakistan's economy experiences a significant downturn, the increasing number of Pakistani investors can have a positive effect on the economic recovery.

Last year, the Pakistani rupee lost 34% of its value (or PKR 53.67). In June of last year, it ended at PKR 157.54. As a consequence, the Pakistani Rupee has fallen to the bottom of a basket of 13 peers, including the Japanese Yen, South Korean Won, and Bangladeshi Taka, to become Asia's "worst-performing currency in 2022." A staff-level agreement with the fund was needed by Pakistan in June to release the remaining $3 billion in its loan program. It has also demanded an additional $2 billion in financing. It has a 3.2 billion dollar debt payment due this year, the biggest in the next decade according to Bloomberg statistics.

Despite the country's economic woes, the country's political climate remains turbulent. People in the poorest and most vulnerable sections of society will be negatively impacted by inflation, growth, and employment, if appropriate policy actions and remedial regulatory frameworks aren't implemented.

The situation around the world

As mentioned in the beginning, the situation around the world in terms of financial condition is deteriorating. There are several reasons behind this. One among others is the ongoing war between Russia and Ukraine. Because of the sanctions against Russia and Ukraine's critical situation, which is one of the biggest commodity suppliers in Europe, the countries have seen a dramatic decrease in Forex reserves and economic situation. It is also worth mentioning that nowadays the US, which is one of the major countries in financial markets, sees a rise in the inflation rate. As a result of this, the Fed tries to get some measures, in order to avoid deflation. Fed has already increased the interest rates, which made the process of buying the US dollar tougher. Because of that investors are trying to invest in other comparatively exotic currency pairs, which will allow them to get more benefits.

It is also worth highlighting that EU countries aren't in an advantageous situation either, considering that the Euro decreases in value in the Forex market as well. To avoid the global financial crisis, national authorities need to take some monetary policies, decrease the taxes for businesses, and make the investment environment more profitable for foreign investors, to expand the economy. Apart from the Forex market, the stock market as well continues to struggle, as the major stocks experience a decrease in value. What will be in the future, depends on several factors, including the countries' monetary policy and the geopolitical situation around the world.

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