Pak PM likely to face Chinese wall on debt

Prime Minister Shehbaz Sharif’s upcoming visit to China is likely to be a grand show but not much to tell on the crucial issue of debt servicing which is almost a do-or-die for Pakistan.

The three-day visit to Beijing will witness grand signing of new trade and development agreements, fresh impetus to the China Pakistan Economic Corridor and perhaps a new slogan for the all-weather friendship. But on debt, China will be extremely reticent to Pakistan’s demand for rescheduling of debt. It has already rescheduled debt worth $1 billion early this year.

China is today Pakistan’s largest single country creditor. Pakistan’s debt servicing to China in 2022-23 accounts for almost 11 % of Pakistan’s total external public debt stock and 45 % of its total annual debt servicing. The total debt from China stands at $26 billion in public and private debts.

Faced with a severe financial crunch, Pakistan is eager to reschedule its bilateral debts totalling around $20.3 billion which includes $9.7 billion of Chinese debt. The IMF had reported that Pakistan owed 30% of its foreign debt to China. China’s lending to Pakistan is three times greater than the IMF and far ahead of combined assistance by the World Bank and Asian Development Bank.

Unlike the IMF, China acts more as a global money lender in times of crisis and not given to concessions. Sri Lanka is a classic case of China’s debt trap diplomacy.

Pakistan has already pleaded with its all-weather ally China to roll over its USD 6.3 billion debt in the backdrop of deep slump and devastating floods. The debt is maturing in the next eight months. Pakistan has also proposed to pay back with a fresh round of loans from China. On both points, Sharif is likely to meet a wall of excuses.

Pakistan is under double pressure–one from the economic slump and another from western lenders who want the government to seek a rollover of Chinese debt, an issue that remains a serious point of disunity. Recently when the US administration called out to Pakistan to seek Chinese help in dealing with bilateral debt, China responded with surprising ferocity, a signal of how it resists any change in its debt servicing policy.

For the current fiscal year, the IMF estimates Pakistan’s gross external financial requirements to be about $34 billion. Pakistan has so far managed to obtain USD 2.2 billion in loans while Saudi Arabia has also announced to roll over USD 3 billion debt maturing in December this year. There is still a massive gap of USD 29 billion and Pakistan is desperate for Chinese roller of about $7 billion in addition to fresh loans.

Sharif and his team might find themselves faced with a great disappointment on the issue of debt rescheduling. China will of course do everything possible to sugar pill it’s hard bargain on debt matters and Sharif might return smiling but empty handed.