In June 2025, China is probable to re-lend $3.7 billion to Pakistan, a move that offers critical financial support amid ongoing economic instability. This gesture reflects the deepening of an already strategic association and carries important weight for Pakistan external debt management and geopolitical positioning.
The $3.7 billion is not new funding but a rollover of existing debt, allowing Pakistan to delay repayments without avoidance. In March 2025, China previously rolled over a $2 billion loan to Pakistan for one year, offering temporary relief as the country struggled with fiscal deficits (Dawn News).
This consistent pattern of support highlights the dependency Pakistan has developed on Chinese credit lines. For context, China is Pakistan largest bilateral creditor, and most of its outstanding debt stems from infrastructure financing, particularly under the China-Pakistan Economic Corridor (CPEC).
According to the State Bank of Pakistan, the country's total external debt reached $131.159 billion by the end of 2023. Of this, over $68 billion is owed to Chinese institutions, including commercial banks, state policy banks, and direct government loans (Wikipedia - National Debt of Pakistan).
This growing debt raises serious questions about long-term sustainability. Analysts and economists are increasingly concerned about Pakistan’s ability to meet its debt servicing obligations, especially with fluctuating currency reserves and political instability. You can read more on this in our article on Understanding Pakistan’s External Debt Challenges.
China’s decision to extend financial support further strengthens the “iron brotherhood” narrative. The strategic relationship goes beyond financial aid—China sees Pakistan as a key partner in its Belt and Road Initiative (BRI), with CPEC being the flagship project.
While these rollovers appear helpful, they come with opaque loan terms and few disclosures. The International Monetary Fund (IMF) has called for greater transparency in bilateral debt agreements, especially concerning liabilities from state-owned enterprises.
“Transparency in financial arrangements is essential for sustainable development and debt management.” — IMF Pakistan Review, 2024
CPEC remains the backbone of Chinese investment in Pakistan. However, many of its projects have been financed through non-concessional loans, making debt servicing increasingly difficult for Islamabad. According to some analysts, this strategy aligns with what is described as “debt-trap diplomacy”, where major infrastructure financing may translate into strategic leverage (Wikipedia - Debt-trap diplomacy).
Despite these concerns, the re-lending will help Pakistan avoid default on obligations related to CPEC energy and infrastructure projects. For more information on how CPEC affects long-time growth, visit our deep dive: The Role of CPEC in Pakistan’s Economic Development.
Repeated loan extensions only defer financial strain without addressing structural issues. Without reforms, Pakistan risks falling into a cycle of perpetual borrowing, weakening both sovereignty and bargaining power in international diplomacy.
Many of the Chinese loans are non-transparent, and the public remains unaware of actual interest rates, maturity timelines, and default clauses. This lack of clarity poses a significant challenge to institutions like the IMF when assessing Pakistan’s overall financial health.
According to Minute Mirror, Pakistan has also requested a five-year extension for an additional $15 billion in Chinese loans, indicating the extent of the country’s financial reliance.
To break this cycle of debt and dependency, Pakistan must:
Depending heavily on China makes Pakistan vulnerable to political and economic shocks. Tapping into multilateral institutions like the Asian Development Bank (ADB), World Bank, and regional partners can reduce risk exposure.
Mandatory public disclosure of loan agreements and contingent liabilities should be enforced to improve investor trust and facilitate better IMF negotiations.
Broaden the tax base, streamline government expenditures, and improve public sector efficiency. These reforms are critical and discussed further in our post on Strategies for Sustainable Debt Management.
China’s $3.7 billion re-lending creativity in June 2025 is a temporary lifeline for Pakistan but not a long-term solution. While it strengthens diplomatic ties and supports short-term stability, it also underscores the urgency for complete economic reforms. To move from dependence to resilience, Pakistan must pivot toward sustainable financial policies, diversified financing, and transparent governance.
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