High-risk countries approach China for debt relief

Published May 1, 2020
Pakistan has to pay about $615 million to China between May 2020 and June 2021 under bilateral debt. — AFP/File
Pakistan has to pay about $615 million to China between May 2020 and June 2021 under bilateral debt. — AFP/File

ISLAMABAD: Following in the footsteps of Pakistan, many high-risk countries who are part of the ambitious Belt and Road Initia­tive (BRI) have approached China for debt relief, the Financial Times reported.

Last month, Pakistan requested China for ease in payment obligations of over $30 billion of about 12,000-megawatt power projects under the China-Pakistan Economic Corri­dor (CPEC) to minimise its financial and economic difficulties, the newspaper reported. This was part of government efforts to sec­ure discounts and savings on power purchases from independent power producers (IPPs) as circular debt liabilities cross Rs2 trillion.

Early this week, the Eco­nomic Coordination Commi­ttee (ECC) of the cabinet authorised the Economic Affairs Ministry to negotiate debt relief with 11 bilateral lenders, including China, under a G20 initiative to suspend for about a year the payment of debt and its interest. Pakistan has to pay about $615 million to China between May 2020 and June 2021 under bilateral debt. The Chinese ambassador to Pakistan has since held a couple of meetings with Economic Affairs Minister Khusro Bakhtiar and Adviser to the Prime Minister on Finance Dr Hafeez Shaikh.

Pakistan had formally taken up its difficulties with China for relief in purchase prices at the highest level during the recent visit of President Arif Alvi to Beijing, as Pakistan’s capacity payments alone were estimated to be closer to Rs600bn this year, and estimated to go beyond Rs1.5 trillion in a few years.

Pakistan has requested two basic relaxations in the existing agreements given the emerging challenges amid economic meltdown across the world in the wake of Covid-19. First, Pakistan desires to bring down mark-up on debt to London Interbank Offer Rate plus two (Libor+2) per cent from the existing average of about Libor+4.5pc.

Second, Pakistan has sought an extension in debt repayment period in the tariff to 20 years from the existing repayment period of 10 years. Almost all the power sector projects in the country have upfront 10-year debt repayment in their tariff structure. The two discounts are estimated to save about $500-550m (more than Rs85bn) annual cash outflows.

“China has received a wave of applications for debt relief from crisis-hit countries included in the “Belt and Road Initiative” as coronavirus strains the world’s biggest development programme,” reported FT quoting Chinese policy advisers, adding that Bei­jing was considering a number of responses, including the suspension of interest payments on loans from the country’s financial institutions. But they also warned against expectations that China would forgive debts outright.

Published in Dawn, May 1st, 2020



Failure of accountability
Updated 26 Jan, 2022

Failure of accountability

THE resignation of PTI government’s accountability czar Barrister Shahzad Akbar is a blow to the party’s central...
26 Jan, 2022

New freight service

THE launch of a new railway freight service connecting the Karachi port with the industrial and commercial centres ...
26 Jan, 2022

Flying curbs

THE unexpected decision of the European Union Aviation Safety Agency to continue its ban on PIA operations to EU...
Under pressure
Updated 25 Jan, 2022

Under pressure

It is fairly obvious that PM is cognisant of the trouble that his government is in from a political and economic perspective.
25 Jan, 2022

Ukraine tensions

TENSIONS between Nato and Russia over Ukraine have reached a critical pass, and there are genuine fears of a fresh...
25 Jan, 2022

Defeating polio

WITH Pakistan in the decisive stage of the battle against polio, every vaccination campaign is of significance as it...