China leads with 75% share in total foreign loans

Debt from Beijing stood at $6.5b in Jul-Apr FY19, which was equal to 75% of total loans

ISLAMABAD: Pakistan, for the first time, fully disclosed the debt taken from China which stood at $6.5 billion for the current fiscal year alone, equal to three-fourths of the $8.6 billion worth of total loans that Islamabad received in the past 10 months, show official documents.

Under pressure from the International Monetary Fund (IMF), the government of Prime Minister Imran Khan has disclosed every type of loan that Islamabad has received from its strategic ally, China.

Foreign loan disbursements in Jul-Apr of the current financial year showed loans for the Karachi Nuclear Power Plants, known as K2 and K3, and China SAFE deposits as part of federal debt obligations.

Earlier, the $2 billion worth of China SAFE deposits, which Islamabad had received in July 2018, were shown on the books of the State Bank of Pakistan (SBP). SAFE is an acronym for the State Administration of Foreign Exchange managed by the Chinese central bank.

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Pakistan also received $3 billion from Saudi Arabia and $2 billion from the United Arab Emirates but these loans were not disclosed along with Chinese SAFE deposits.

Pakistan has long been using Chinese money to shore up its official foreign currency reserves but it is for the first time that these Chinese deposits with the central bank have been made part of the Ministry of Finance’s debt statistics.

Finance ministry spokesman Dr Khaqan Najeeb did not comment on the development. But a senior official of the Ministry of Finance and Economic Affairs told The Express Tribune that the decision to disclose Chinese SAFE deposits was taken at the level of Adviser to Prime Minister on Finance Dr Abdul Hafeez Shaikh.

The full disclosure of Chinese loans was one of the sticking points between the government and the IMF during staff-level negotiations for a $6-billion bailout package. It now seems Prime Minister Imran Khan has accepted the IMF’s terms on Chinese loans.

The United States wants to ring-fence IMF money in order to stop Pakistan from using such funds for repaying Chinese loans.

Owing to the fresh disclosure, the Chinese foreign loans from July through April FY19 surged to $6.56 billion, according to the finance ministry’s documents. These were equal to 75% of the total foreign loans of $8.6 billion that Pakistan received during the period.

There was over $2-billion jump in foreign loan disbursements within a month due to the disclosure of Chinese loans.

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Out of the $6.5 billion, China gave $2 billion in SAFE deposits and $2.53 billion in foreign commercial loans, also for cushioning the declining foreign exchange reserves.

In March, the Chinese government provided the loans through two commercial banks. China Development Bank gave $2.24 billion in a short-term loan while Industrial and Commercial Bank of China (ICBC) disbursed $300 million.

China gave $628.4 million for the construction of two ongoing nuclear power plants in the past 10 months, according to the finance ministry statistics.

China also gave $1.4 billion in project financing in the past 10 months, largely for China-Pakistan Economic Corridor (CPEC) projects. Project loans have largely been disbursed for the Sukkur-Multan motorway, Havelian-Thakot project of CPEC and Lahore Orange Line project.

Every successive government has been heavily relying on foreign loans to stay afloat. The reliance on China increased in recent years after the traditional multilateral lenders stopped budgetary support due to deterioration in macroeconomic conditions.

Pakistan hopes that the blocked budgetary support will soon be restored after approval of the $6-billion bailout package by the IMF Executive Board. It also expects to return to the international capital market from the next fiscal year to raise funds for building official foreign currency reserves.

On the back of Chinese loans, the commercial financing surged to $3.2 billion as of the end of April, which was equal to 37.2% of the total foreign loans. Ajman Bank PJSC disbursed another tranche of $76 million in April, taking its total loans to $150 million.

A consortium of Credit Suisse AG, UBL and ABL has already given $295 million and $184 million was released by Dubai Bank in previous months. The lending by multilateral agencies amounted to $1.3 billion or 14% of the total disbursements. The country received $380 million from the Asian Development Bank (ADB) by April, far lower than estimates. The World Bank disbursed only $250 million.

The Islamic Development Bank (IDB) disbursed an additional $35 million last month, which took its total loans for Pakistan to $578 million in 10 months. The IDB gave these commercial loans for oil purchase from Saudi Arabia. The disbursements by other lenders remained low.

Published in The Express Tribune, May 23^rd, 2019.

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