Pakistan seeks $10 billion US currency backstop after Iran mediation

Key facts

• Pakistan has applied for a U.S. foreign currency backstop facility of up to $10 billion.
• The facility is intended to strengthen the country's foreign exchange reserves.
• The request was made to U.S. Treasury Secretary Scott Bessent.
• Pakistan's finance minister, Muhammad Aurangzeb, met with Bessent in Washington.
• The facility could have a maturity of up to five years.
• This request follows Pakistan's role in mediating talks related to the Iran war.

Pakistan has applied for a U.S. foreign currency backstop facility valued at up to $10 billion, Nikkei Asia has learned. This move aims to bolster the country's foreign exchange reserves and provide a cushion against potential shocks.

The request was reportedly made to U.S. Treasury Secretary Scott Bessent for a Bilateral Exchange Stabilisation Support Facility, which could have a maturity of up to five years. If approved, the facility would help increase Pakistan's reserves, support the Pakistani rupee, and reduce its reliance on multilateral financing.

This development follows Pakistan's recent diplomatic engagement in mediating talks related to the Iran war, which has reportedly raised its international profile and fueled expectations of economic benefits from Washington and other partners. Pakistan's Finance Minister Muhammad Aurangzeb met with Bessent in Washington, where he sought greater U.S. support for access to international capital markets and improved sovereign credit ratings.

Pakistan is currently under a $7 billion International Monetary Fund program that necessitates politically challenging fiscal and monetary reforms. The country narrowly avoided default in 2023 and has relied on official financing, rollovers, and deposits from countries like China and Saudi Arabia to maintain its reserves. A U.S. facility would offer not only financial support but also a significant political signal from Washington.