Pakistan has initiated a major effort to restructure its debt obligations with key allies, China, Saudi Arabia, and the UAE, in a bid to secure a crucial $7 billion IMF bailout package and alleviate pressure on its energy sector.

Finance Minister Muhammad Aurangzeb revealed in a press conference that Islamabad has requested these friendly nations to extend the maturity period of over $12 billion in annual debt by three to five years, aiming to secure IMF board approval for the 37-month bailout by next month.

The government is aiming to re-profiling a total of $27 billion in debt.

Furthermore, Pakistan has requested China to convert imported coal-based projects to local coal and restructure over $15 billion in energy sector liabilities. This move aims to create fiscal space and address challenges in timely debt repayments.

The restructuring plan involves extending the maturity period of existing loans – $5 billion from China, $4 billion from Saudi Arabia, and $3 billion from the UAE – to at least three years, providing greater financial predictability under the IMF program.

Following his return from China, Mr. Aurangzeb highlighted that Chinese officials acknowledged Pakistan’s foreign exchange difficulties and expressed willingness to support new business ventures, restructure energy sector payments, and advocate for Pakistan’s case at the IMF board.

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The process of debt and equity rescheduling has commenced and will involve working groups with relevant financial institutions and Chinese project sponsors. Pakistan has engaged local Chinese consultants to assist in this process.

Mr. Aurangzeb emphasized the importance of securing external financing commitments from bilateral partners before the IMF board meeting on the bailout package. He clarified that the Chinese energy sector debt re-profiling is separate from the IMF program, as other prior actions have been completed, and structural benchmarks are being implemented.

The Finance Minister expressed confidence in securing the necessary external financing for the next three years, stating that he has received assurances of support from the finance ministers of China, Saudi Arabia, and the UAE. This restructuring effort aims to address Pakistan’s immediate financial challenges and provide a more stable financial outlook for the country.