Bankrupt Pakistan’s economic crisis raged up as China denied providing the country with debt relief. Islamabad has requested Beijing to forgive debt liabilities owed to China-funded energy projects established under the China-Pakistan Economic Corridor (CPEC). China has declined to restructure $3 USD billion in liabilities.
Pakistan’s Debt and China’s response to it
The debt, owed largely for the building of independent power producers (IPPs) on take-or-pay power generation contracts, is substantially more than the US $19 billion in total invested in the plants.
Reports suggest that China has refused to agree on Islamabad’s request to renegotiate the power purchase agreements, saying that any debt relief would require Chinese banks to renew and edit the terms and conditions under which the credits were extended.
Beijing said in response to the request to renegotiate terms that, the banks, which include China Development Bank and the Export-Import Bank of China, were not ready to revise any of the clauses of the agreement reached earlier with the government.
Pakistan Tehrik-e-Insaf (PTI) Senator and industrialist Nauman Wazir told in a recent interview-
First, the tariff determined by National Electric Power Regulatory Authority (NEPRA) at the time of allowing power generation in the private sector was on the very high side.”
Adding to it he said that, “Then, the IPPs submitted erroneous declarations concerning capital, financial assets and operational cost of the company, which became obvious when the balance sheets of the IPPs were made public,” he added this statement by submitting evidence that came to light when an inquiry committee on Pakistan’s power sector revealed its findings last year.
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Pakistan’s current debt status
Pakistan has already entered a sovereign debt “danger zone” with total liabilities and debts of US $294 billion representing 109% as a percentage of GDP as for till 30 December 2020. The Pakistan government reportedly owes about US $158.9 billion to domestic creditors, out from which public sector enterprises owe about US $15.1 billion.
According to a latest report, the foreign commercial loans of US $3.11 billion and US $1 billion from Chinese deposits helped the government to achieve the total transfer of dollar inflows in the current fiscal year.
With the combination of foreign commercial loans and safe deposits, Pakistan received over US $4.1 billion that was over 50% out of the total gained foreign dollar inflows from creditors.
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Inflows received by the Pakistan Government till now
According to official data of the Economic Affairs Division (EAD), during July-February of the fiscal year 2020-21, Pakistan’s government has received US $7.208 billion total external inflows from multiple financing sources, which are 59% of annual budget estimates of US $12.233 billion for the entire fiscal year 2020-21.
The report further states that; disbursement from multilateral and bilateral development partners also maintained a strong trend and is US $3.098 billion during the period under review against the budgetary allocation of US $5.811 billion for the fiscal year 2020-21 on concessional terms with longer maturity. These healthy inflows also added to improve foreign exchange reserves and exchange rate stability.
In conclusion of an official report-
“The Pakistan outlet claims that increased level of external inflows from multilateral and bilateral development partners is indicative of their confidence in development priorities and policies of the government, including implementation of reforms in the priority areas of fiscal and debt management, energy sector and ease of doing business.”
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