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Pakistan third largest beneficiary of Chinese uplift funding

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10 months ago

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  • 98% funds are loans, while 2% are given in grants.
  • 8% funds were official development assistance.
  • $70.3 billion committed by China from 2000 to 2021.

KARACHI: Pakistan remains the third largest recipient of development financing by China in the world, as the Asian nation contributes to building the infrastructure in the country with a majority of the investments being loans and not grants.

The information was revealed in a study by AidData, a United States-based research lab, which added that 98% of Chinese development funding was invested in the form of loans with just 2% handed over as grants in the last two decades — 2000 and 2021.

“Out of the total Chinese development finance portfolio of $70.3 billion, committed between 2000-2021 in Pakistan, 8% was official development assistance (grants and highly concessional loans) and 89% was other official sector loans,” AidData mentioned in its latest released data.

The China-Pakistan Economic Corridor (CPEC), a global infrastructure and investment initiative with over $45 billion in projected investments, was launched in 2013 and is thought to be the largest partnership of Beijing’s Belt and Road Initiative (BRI). It increased to over $62 billion over time, and at least $25 billion was invested in Pakistan.

With $14.0 billion in finance commitments, 2017 was the top year for Pakistan; following a decline in 2018, the amount increased again in 2019 and 2020, even with the pandemic. With a 9.84-year maturity and a 3.74-year grace period, the average interest rate on loans is 3.72%, it added.

In Pakistan, the top three sectors from 2000 to 2021 were energy (40%, or $28.4 billion), general budget support (30%, or $21.3 billion), and transportation and storage (14%, or $9.7 billion).

The top three industries throughout the (BRI) era (2014–2021) were transportation and storage (13%, $7.2 billion), general budget support (30%, $16.08 billion), and energy (43%, $23.29 billion).

Pakistan and China have a long history of economic collaboration, and this year marks ten years of such ties. It has helped Pakistan through all of its tough economic downturns and crises.

But it’s worrying that Chinese less-than-generous loans coupled with Pakistan’s mismanagement have made Pakistan’s debt load even higher.

Dr Ammar A Malik, who is a senior research scientist at AidData, said between 2000-2021 Pakistan received 161 official sector loans from China worth $68.92 billion, making it the third-largest Chinese loan portfolio in the world. This includes $28.13 billion in rescue lending, including currency swap debts taken by the State Bank of Pakistan and deposits from SAFE and Chinese state-owned commercial banks.

AidData estimates that Pakistan’s outstanding public and publicly guaranteed debt to China stands at $67.22 billion, which is 19.6% of GDP, and $21.2 billion more than what Pakistan has officially reported to the World Bank’s Debtor Reporting System.

“In terms of the composition of debt from China, since 2018 China has pivoted away from infrastructure lending toward emergency lending in Pakistan, ensuring that the earlier debts taken on by Pakistan for energy, transport, and other CPEC projects can be repaid on time and with interest,” Malik said.

“As compared to the Zardari and Sharif years from 2008 until 2017, when energy and transport sectors dominated, during the PTI government between 2018-2021, the single largest sector was general budget support, which showcases the pivot in China’s economic relations with Pakistan that moved from infrastructure-heavy lending into emergency lending for rescuing Pakistan’s economy.”

According to the details on the implementation of Chinese-financed projects in Pakistan from 2000 to 2021, only three projects totaling $452 million out of 127 infrastructure projects worth $38.80 billion have been cancelled or suspended as of yet. Estimates from AidData show that environmental, social, and governance (ESG) hazards have been present in 52% of this portfolio of infrastructure projects.

The energy industry has seen the most difficulties in terms of ESG risks, with 51% of the portfolio dealing with one or more of these issues.

Pakistan is the largest beneficiary of China’s energy investments in Asia, and it holds the largest global proportion of the Belt and Road Initiative’s transport and storage projects.

With an energy portfolio valued at $28.4 billion, Pakistan has the largest in Asia, surpassing both Vietnam ($21.7 billion) and Indonesia ($17.9 billion). Globally, it is ranked highest, above both Angola ($24.7 billion) and Vietnam ($21.7 billion). It accounts for 10.2% of China’s total energy portfolio worldwide, which is distributed among several nations.

Pakistan has one of the largest transport sector portfolios in the world, with $9.69 billion worth of highways, bridges, and other supporting infrastructure.

AidData’s research indicates that China is investing more in Pakistan than the US.

China has surpassed the United States in foreign development financing more times than any other country since 2012, outspending it by 1.6 times in 2013, 7.7 times in 2016, and 22.4 times in 2021.

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It is anticipated that 150 ships would arrive at Gwadar by the year 2045, allowing the port to handle fifty percent of all imports.

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3 days ago

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In an effort to strengthen the port’s economic importance, the Federal Government has made the decision to direct fifty percent of all imports from the public sector to Gwadar Port.

By taking this action, which has the backing of the Special Investment Facilitation Council, the port’s financial situation is going to be improved.

The Cabinet will be presented with a summary of imports through Gwadar by the Ministry of Maritime Affairs, which will take place after Prime Minister Shehbaz Sharif’s recent trip to China.

When the next Cabinet Meeting takes place, Ahsan Iqbal, the Federal Minister for Planning, Development, and Special Initiatives, will examine the Chinese offer for the Karachi to Hyderabad Section of the ML-1 Project and bring it to the Cabinet.

Company preparations for the Shanghai International Import Expo, which will take place in November 2024, are being made by the Board of Investment and the Ministry of Commerce of Pakistan.

One of the most important aspects of the China-Pakistan Economic Corridor is the Gwadar port, which serves as a significant commerce route connecting China, the Middle East, Africa, and Europe. At this time, the Gwadar Port is able to accommodate two huge ships, and by the year 2045, it is anticipated that it would be able to handle up to 150 ships.

By developing the Gwadar Port, regional connectivity would be improved, employment will be created, and international investment will be attracted.

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The price of gold in Pakistan has experienced a significant surge.

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3 days ago

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Gold prices in Pakistan surged significantly on Thursday following two consecutive days of decline, with the price per tola rising by Rs2,000 to reach Rs262,100. This increase was in accordance with the downward trend in international market values.

The All-Pakistan Gems and Jewellers Sarafa Association (APGJSA) reported that the price of 10 grams of 24-karat gold rose by Rs1,714, reaching Rs224,708.

Conversely, the world gold market experienced an upward trajectory. According to the APGJSA, the global price of gold surged to $2,503 per ounce following a $22 gain during the trading session.

The local market experienced a significant decline in silver prices, decreasing from Rs50 to Rs2,900 per tola after a prolonged period.

The local market’s gold prices remain subject to the ever-changing dynamics of the international market, as well as domestic considerations such as currency exchange rates and domestic demand.

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The government has not met the deadline set by the International Monetary Fund (IMF) for the approval of a $7 billion loan.

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4 days ago

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On Tuesday night, there were virtual talks between representatives of the Finance Ministry and the IMF delegation, with the main topics being external finance and income generation.

According to people familiar with the situation, no date has been set for the IMF’s Executive Board to approve the loan despite the ongoing negotiations.

Officials from the Finance Ministry informed the IMF mission about the government’s initiatives to get outside funding during the discussions. Updates on loan rollovers and fresh finance commitments from allies were included in this. According to sources, the IMF has received a schedule, and loan rollovers are expected to be finished by the end of next week.

The $12 billion in debt must be rolled over before the loan can be approved by the Executive Board, according to the IMF mission.

In the virtual discussions, representatives of the Federal Board of Revenue (FBR) conversed with the IMF team over the revenue deficit. The FBR must reach its revenue goals for this month, according to the IMF mission. As a result, the IMF has asked the FBR to submit a thorough strategy outlining how it will close the gap left by the shortfall and guarantee that revenue goals are reached.

Apart from the conversations on outside funding, there are rumors that the Finance Ministry is actively holding talks with commercial banks in order to obtain new funding. According to reports, negotiations are taking place with four distinct sources for commercial loans, which are anticipated to support the government’s overall financial plan.

Finance Minister Muhammad Aurangzeb disclosed on Tuesday that the IMF was in favor of introducing targeted subsidies. He said that qualifying recipients might receive these subsidies through the Benazir Income Support Programme (BISP).

In order to guarantee consistency, the minister announced that this week’s talks with chief ministers will focus on implementing a similar policy across the country. He was having a casual conversation in parliament with the journalists.

In response to queries about outside funding, Aurangzeb revealed a $2 billion deficit and said that talks to close this gap are progressing. He stressed how crucial it is to obtain business loans.

He went on, “At this point, there’s a need to secure an agreement for commercial loans, not exactly their issuance,” emphasizing that debt rollover negotiations are nearing their conclusion and doing well. The minister expected that these developments would shortly be reported to the governments of allied countries by relevant authorities.

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