Is Chinese debt the real cause of Pakistan's economic crisis?
When the Federal Finance Minister announced the receipt of a loan of 700 million dollars from China, the reason for his happiness was probably the increase in the dwindling foreign exchange reserves of Pakistan, but the loans obtained from China and Chinese banks are now the sum owed by Pakistan. One-third of the debt has been paid.
In the past seven to eight years, Pakistan's outstanding debt has seen a significant increase in loans from China and Chinese commercial banks.
In such a situation, one of the main reasons for the current economic crisis of Pakistan is being declared to be the return of foreign loans, due to which the country's foreign exchange reserves are decreasing.
It should be noted that Pakistan has to make huge payments in the current fiscal year and the next two fiscal years in terms of external debt.
In the remaining months of the current financial year, Pakistan has to pay eight billion dollars of external debt, so the bigger problem is the external debt owed by Pakistan in the next two financial years, which is 50 billion dollars, which will be returned to Pakistan in these two years. including debt repayment to China and Chinese commercial banks.
According to Pakistani economic experts, China's loan repayment facility can certainly reduce the risks to Pakistan's economic front, but at the same time, the rescheduling of loans by other countries and international financial institutions is also very important. It is necessary.
In the first decade of the present century, the ratio of the loan provided by the member countries of the Paris Club was large in the debt due to Pakistan, but in the last seven to eight years, the loan given by China is the highest. Along with this, lending by Chinese banks has also increased tremendously.
According to economists, the reason for the increase in Chinese debt is Chinese investment in the form of loans for energy and infrastructure projects in the Pakistan-China Economic Corridor (CPEC). And has also taken loans from Chinese commercial banks to increase foreign exchange reserves.
The latest example of this is the $700 million loan approved by the China Development Bank, which according to Federal Finance Minister Ishaq Dar will help increase the country's foreign exchange reserves.
But is this debt the real cause of Pakistan's economic problems?
BBC spoke to experts to find out the answer to this question, but despite repeated contact with the officials of the Ministry of Finance of Pakistan, the government did not give any position.
Finance Minister Ishaq Dar, Minister of State for Finance Dr. Ayesha Ghos Pasha, and the spokesperson of the Ministry of Finance did not respond to calls and messages in this regard.
How much is the Chinese debt in Pakistan's total debt?
Pakistan's total external debt is currently more than 97 billion dollars, which includes loans from international financial institutions, various countries, foreign commercial banks, and the international bond market. included.
According to the State Bank of Pakistan, this loan includes loans from Paris Club, IMF, World Bank, Asian Development Bank, and other international financial institutions besides foreign commercial banks.
Looking at Pakistan's borrowing trend in the last seven years, the external debt which was 24% of the GDP in 2015 will increase to 40% of the GDP in 2022.
Pakistan's total debt includes loans provided by international financial institutions, other countries, and commercial banks, but in the reports of the Government of Pakistan and the Central Bank, it is taken from the 'Paris Club' and 'Non-Pers Club countries. Debts are shown and countries are not named individually.
However, when the details of the debt owed by Pakistan were published by the IMF in the report presented after the last review mission, according to these details, the Chinese debt is currently about 30 percent of the total debt owed by Pakistan.
According to the IMF, the credit provided by the Chinese government is $23 billion, while the credit provided by Chinese commercial banks is around $7 billion.
Thus, the total debt becomes about 30 billion dollars, while the total debt owed by Pakistan is about 97 and a half billion dollars at present.
Economist Ammar Habib Khan, while talking to BBC News, said that the loan provided by Chinese commercial banks is the loan provided by China. It should be understood because Chinese commercial banks run under government supervision like National Bank in Pakistan is a government-run bank.
Why did the share of Chinese loans increase in Pakistan's total debt?
China and its commercial banks account for nearly 30 percent of Pakistan's total external debt. Looking at the debt repayment data of the last financial year, the largest loan repayments were made to China and Chinese commercial banks.
According to the loan repayment data available on the website of the Economic Affairs Division, in the first quarter of the current fiscal year, the amount of loans, including interest, returned to China was more than $500 million, compared to Saudi Arabia. , the loans to be repaid to Japan, Kuwait, and France were negligible in value.
Similarly, the volume of loans repaid to foreign commercial banks is also high, including most Chinese commercial banks.
Talking to BBC News about the increase of Chinese loans in Pakistan's total external debt in the last seven or eight years, the former finance minister of Pakistan, Dr. Hafeez Pasha, said that there are three types of loans given by China. One is the Chinese loan that was given for CPEC projects. The second loan was given by Chinese commercial banks and the third is the deposits kept by China in the State Bank of Pakistan.
According to Amreen Sorani, an expert in economic affairs at JS Research, the reason for the increase in Chinese loans in Pakistan's loan exposure is the loans given for projects in CPEC, along with the deposits given to Pakistan by China. It contributed when Pakistan looked to China for financial difficulties, which led to the share of Chinese loans rising to 25 to 30 percent of Pakistan's total debt.
According to Shehbaz Rana, a senior journalist of economic affairs based in Islamabad, although loans were given to Pakistan by China and its commercial banks in various projects of CPEC, the loans that have become a problem for Pakistan at the moment are those from China and External financing from its commercial banks was provided to reduce the current account deficit and increase foreign exchange reserves.
According to him, the loans given in the energy sector in CPEC were given to Independent Power Producers (IPPs) and were not reflected in the overall debt of Pakistan, however infrastructure projects like Sukkur Multan Motorway, and Tha Kot Motorway. And the loans given in some other infrastructure projects are disclosed.
Is China's debt the real cause of Pakistan's economic problems?
Talking about the difficulties in repaying the Chinese loan, Shahbaz Rana said that when it comes to repaying the Chinese loan, the problem is mainly the loan that Pakistan has taken to meet the need for external financing. was borrowed and it was borrowed from commercial banks.
According to him, the repayment period of this Chinese loan is a period of one and a half to two years and the maturity of the loan repayment comes very soon, due to which a country like Pakistan, which is suffering from a shortage of foreign exchange reserves, is facing problems.
Rana said that the repayment period of loans obtained under the Paris Club is longer, ranging from 15-20 years to 25-30 years, but the repayment period of loans from Chinese commercial banks is shorter.
However, Ammar Habib said in this regard that there is no special difficulty in paying the Chinese debt.
He said that these loans are rolled over. He said that this loan is for one or two years and both parties know that this loan will have to be rolled over, so the rollover is done.
Amrin Sorani said in this regard that the loan period for the project is long and there is a deposit procedure that applies to Chinese deposits as well as deposits from other countries.
According to Yusuf Nazar, a financial expert, and former Citibank banker, the share of Chinese loans has increased in Pakistan's total debt, which means that Pakistan now owes the most to China.
He said that the loan received under CPEC has to be repaid in the form of foreign currency while the earnings from these projects are in Pakistani rupees which definitely has an impact on external sector payments.
Yusuf said that similarly if we look at the interest rate of Chinese commercial loans, it is more expensive than World Bank and IMF loans and half a percent more in billion-dollar loan loans is very expensive for a country like Pakistan.
How can China help Pakistan in this economic crisis?
As the proportion of Chinese debt in Pakistan's outstanding debt has increased over the past seven to eight years, Pakistan now owes more to China than other countries.
According to economists, the facility in repaying these loans can help Pakistan in the external financing sector, which is becoming difficult due to Pakistan's dwindling foreign exchange reserves.
According to Amar Habib, the facility to roll over these loans is definitely necessary for Pakistan and according to him, they are rolled over because both sides understand that when their repayment period ends, they will roll over. It has to be done and it keeps happening.
Amreen Sorani said in this regard that there should be a rollover of Chinese debts, not restructuring. He said that in restructuring new conditions are fixed but in a rollover, it is not.
He said that an example of this is the approval of the latest loan of 700 million dollars to Pakistan by the Bank of China.
According to him, this is a kind of rollover because Pakistan had paid some time ago and now the same loan has been rolled over and given to Pakistan again.
He said that Pakistan has rescheduled loans from Paris Club in the past and now it does not seem appropriate to reschedule them from there again and this facility from China can be useful for Pakistan.
Yusuf Nazr said in this regard that Pakistan has to pay back the most debts to China, so surely China can help the most in this regard, but China and international financial institutions should be brought together for debt rescheduling. We have to sit down, but so far no such indication has been received from China.
According to him, although China's debt is currently the highest, Pakistan's debt rescheduling can be done in collaboration with the World Bank and the IMF, because it happens in the world where lending countries or institutions work together. They act as members of the Paris Club have done together in the past.
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