Islamabad, Feb 28 (IANS): China has agreed to rollover a $2 billion debt on existing terms after initially seeking a hike in price, as Pakistan’s policy to maintain foreign exchange reserves through deposits by three countries is becoming costly due to a 118 per cent surge in interest cost, a media report said.

An understanding has been reached with Beijing to further extend the repayment period of the $2 billion loan maturing on March 23 -- the Pakistan Day, The Express Tribune reported.

Sources said that China had initially asked to further increase the interest rate on the $2 billion debt. Pakistan is currently paying 7.1 per cent interest on the basis of the six-month Secured Overnight Finance Rate (SOFR) plus 1.715 per cent, the report said.

The officials said that China has informally communicated its decision to further extend the repayment period and the Finance Ministry is waiting for a formal response.

Pakistan's interim Prime Minister Anwaarul Haq Kakar had last month formally requested the Chinese government to rollover the maturing loans, according to officials, The Express Tribune reported.

Pakistan paid Rs 26.6 billion in interest in the last fiscal to China, Saudi Arabia, and the UAE on the $9 billion deposits that these three nations placed with the State Bank of Pakistan (SBP), the SBP balance sheet showed.

In the preceding year, the country had paid Rs 12.2 billion which jumped by 118 per cent within a year.

The authorities said that a major factor behind the 118 per cent increase in the interest cost was the currency devaluation in the previous fiscal, The Express Tribune reported.

The central bank’s gross official foreign exchange reserves stand at $8 billion.

Over the past one decade, Pakistan has adopted a policy to borrow from the regional countries during difficult economic times.