PAKISTAN’S plan to seek a larger currency-swap facility with China while pursuing a similar arrangement with the US is a prudent financial diversification effort. Despite improvements, our foreign exchange reserves remain vulnerable to debt repayments, import costs and external shocks. More liquidity backstops can ease that pressure. A currency swap lets central banks temporarily exchange their respective currencies, giving the liquidity-constrained country access to foreign exchange for payments and easing pressure during shortages.
Pakistan has drawn China’s 30bn yuan facility, due for renewal in 2027 when Islamabad seeks an increase, while awaiting America’s approval for $10bn.
Pursuing both arrangements would give Pakistan more options when external financing comes under pressure. The Chinese facility can also support trade and payments with China in renminbi, reducing the immediate need for dollars for some transactions. A dollar facility would provide more direct support for dollar-denominated obligations and foreign-exchange market pressures. But the limits of these facilities must be clear. A drawn facility creates a liability that must be repaid. The State Bank reserve figures should therefore disclose and distinguish between freely available reserves and funds with repayment obligations. That said, these facilities are not a substitute for economic reform. They can provide breathing space, but cannot permanently strengthen the external account. The risk would be to use easier access to liquidity to postpone the difficult work of raising productivity, expanding exports and reducing dependence on external borrowing. For now, however, the strategy is useful.
Pakistan needs stronger buffers against oil-price spikes, debtservice pressures and other external shocks. A wider network of bilateral liquidity facilities can reduce the risk of a temporary shock turning into another protracted balance-of-payment crisis.
The aim should be simple. Build credible external buffers and use them sparingly. More importantly, increase exports, attract stable FDI and boost the economy’s capacity to earn foreign exchange.