In a significant development amidst Pakistan's economic challenges, China has extended a vital lifeline to its ally by agreeing to roll over a $2 billion debt.

Sources privy to the matter said that initially, China had reportedly sought an increase in interest rates on the debt.

However, after negotiations, an agreement was reached to maintain the existing terms. Pakistan, grappling with a surge in interest costs due to its policy of maintaining foreign exchange reserves through deposits, found relief in this decision.

The debt, maturing in the week of Pakistan Day, March 23, posed a significant challenge to the country's already strained finances. The rollover of this loan is expected to ease pressure on the State Bank of Pakistan's depleting foreign reserves, currently standing at $8 billion.

Caretaker Prime Minister Anwaar-ul-Haq Kakar played a pivotal role in securing this agreement, formally requesting Chinese Premier Li Qiang to extend the loan term. In his letter, PM Kakar expressed gratitude for China's continued financial support during Pakistan's economic hardships.

The rollover of this debt comes as part of China's ongoing assistance to Pakistan. Last year, Beijing came to Pakistan's aid amid difficulties in securing a critical loan from the International Monetary Fund (IMF). The Chinese government rolled over more than $2 billion in debt, helping Pakistan avoid immediate default.

The rollover of this debt, along with other financial support from China, including safe deposits amounting to $4 billion, is expected to alleviate some of Pakistan's external payments burden.

However, analysts caution that Pakistan's economic challenges remain complex, necessitating comprehensive strategies to address underlying issues such as currency devaluation, stagnant foreign direct investment, and trade imbalances.