Pakistan appeals to China for debt relief to help support reforms

July 29, 2024 (MLN): Pakistan has sought Chinese help to “reprofile” its debts with rollovers and maturity extensions to create more breathing room for economic reforms it’s seeking to enact under a new International Monetary Fund’s $7 billion loan program, as Bloomberg reported.

Discussed with central bank officials during a recent visit to Beijing was a proposal to extend the maturity of debt for nine power plants built by Chinese companies under the multi-billion dollar economic corridor, called CPEC, as well as that for an electricity transmission project, Finance Minister Muhammad Aurangzeb said at a news conference in Islamabad.

Since then there’s been a decision by Pakistan to appoint a Chinese adviser to help sort the matter out, Aurangzeb said.

“Each project has a different debt profile and specific issues, so we will have to go project by project,” he said. “We have to take both an immediate incompatible tariff as well as structural issues into account together.”

Pakistan’s government is also demanding the use of locally-mined coal in Chinese-built power plants as a way to slash energy costs, he said.

China has built major infrastructure and energy projects in Pakistan to push President Xi Jinping’s Belt & Road vision, leaving the South Asian nation burdened by huge debts.

Prime Minister Shehbaz Sharif’s government is now in talks with China, Saudi Arabia, and the United Arab Emirates to seek assurances for a three-year financial cover required for final approval of the Washington-based lender’s loan, according to the minister.

Aurangzeb gave no estimate of the level of external financing his country needs, but called it a “very manageable” amount.

Fitch Ratings this month estimated Pakistan’s funding need at $20bn through June, and has warned that any policy missteps from the IMF’s track will renew funding stress.

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