I heard that China insisted that Imran Khan request loan in person before Xi considers it. Is that true?
Their friendship may be doing well rhetorically, but Islamabad’s reliance on Chinese money is creating complications for Pakistan.
thediplomat.com
Will Beijing Heed Pakistan’s Request for Loans?
Their friendship may be doing well rhetorically, but Islamabad’s reliance on Chinese money is creating complications for Pakistan.
By
Umair Jamal
February 02, 2022
Khunjerab Pass at 16,000 feet in the Karakoram Mountains on the northern border of the Pakistani region of Gilgit–Baltistan, September 21, 2016.
Credit:
Wikimedia Commons/Rohaan Ali BhattiADVERTISEMENT
Prime Minister Imran Khan’s upcoming visit to China on February 3-5 will largely focus on
seeking more financial help to support Pakistan’s economy. However, financial dealings between the two countries have become increasingly complicated due to Pakistan’s diminishing foreign reserves and inability to return loans taken in the past.
This suggests that the Pakistani prime minister will not get substantial funds from Beijing unless previous budgetary issues between the two countries get addressed.
The Pakistani leadership has sought to pitch the trip as an example of the support the two countries extend each other in difficult times. In an interview with Chinese journalists in Islamabad last week, Khan
said that the West’s criticism of Beijing regarding the treatment of Uyghurs in Xinjiang was unfounded, as the situation on the ground doesn’t show any ill-treatment. He went on to say that the West’s criticism of China over the Uyghur issue is reflective of its selective policy, which does not call out New Delhi for its alleged human rights violations in Indian administrated Kashmir.
Meanwhile, Pakistan’s Foreign Minister Shah Mahmood Qureshi
said that the key objective of Khan’s visit to China was to attend the Beijing Winter Olympics and express solidarity with Beijing as several countries have called for a diplomatic boycott of the Games.
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In a separate statement, the Pakistani Foreign Office
said that the visit will reinforce the “All Weather Strategic Cooperation Partnership” and advance the objective of building a closer China-Pakistan community.
However, beyond rhetoric and solidarity calls, the trip’s agenda shows that Pakistan’s economic and diplomatic reliance on China continues to grow.
Khan is likely to ask for
$3 billion in loans from China to stabilize the country’s falling foreign reserves. Reportedly, China has already placed $11 billion with Pakistan in the form of commercial loans and foreign exchange reserves. These loans are part of Pakistan’s current official foreign exchange reserves that stand at around $16.1 billion.
Moreover, Pakistan is also expected to pitch around
six priority sectors including textiles, footwear, pharmaceuticals, furniture, and agriculture for their competitiveness to attract Chinese businesses.
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It is unlikely that Chinese will inject substantial financial support unless the existing budgetary issues over previous investments are resolved. For some time now, Chinese investors in Pakistan’s energy sector have repeatedly asked Islamabad to resolve issues of existing project sponsors in order to attract fresh investment. A number of these projects are stuck in a circular trap in Pakistan. For instance, some Chinese projects in Pakistan are facing problems in securing
insurance of their loans back home due to Pakistan’s massive energy sector circular debt of about $14 billion. Roughly, Pakistan has to pay around
$1.3 billion to Chinese power producers and so far only $280 million has been paid.
The subject will surely be on the Chinese leadership’s agenda this week. Beijing has driven a hard bargain with Islamabad when it comes to paybacks on its loans and other investments in Pakistan. In the outgoing fiscal year,
Pakistan paid around $150 million in interest to China for using a $4.5 billion Chinese trade finance facility. In financial year 2019-20, Pakistan paid $120 million in interest on use of a $3 billion facility.
Another example of Chinese hard bargain policy over monetary dealings vis-à-vis Pakistan is well documented in the case of Dasu Dam Project. Last year, China demanded
$38 million in compensation for the families of engineers who died in the Dasu Dam terror attack. Reportedly, Beijing made the compensation a precondition for the resumption of work on the project. To placate Beijing, Pakistan has agreed to pay
$11.6 million in compensation to the 36 Chinese nationals working on the project.
Arguably, Pakistan’s existing foreign currency reserves have largely been built through borrowing. A majority of these foreign reserves are there due to Chinese loans. Pakistan’s reserves fell sharply over
$1.5 billion in the first three weeks of January 2022. The reserves have fallen below the $23 billion mark mainly due to massive external debt servicing. It is important to mention here that in December 2021, Pakistan received a loan of $3 billion, which the country has already consumed.
These dealings reflect that Khan’s push to win more funds during his upcoming visit to China will not be easy. And if he manages to get more funds, it will add to the country’s debt stock and service obligations. This has been the case in the past. Last year, Pakistan took around $3 billion from China to return the same amount owed to Saudi Arabia.
At the moment, Pakistan is eyeing to revive the $6 billion loan program with the International Monetary Fund (IMF) to support its foreign exchange reserves. However, at this point Pakistan’s case at the IMF remains uncertain.
Pakistan and China’s “all weather friendship” may be doing well rhetorically, but Islamabad’s all out reliance on Chinese money to manage its economic woes is not working out well.
AUTHORS
CONTRIBUTING AUTHOR
Umair Jamal
Umair Jamal is a correspondent for
The Diplomat, based in Lahore, Pakistan.
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As Prime Minister Imran Khan prepares to visit China for the Winter Olympics, many believe that he is eyeing a major loan.
www.dw.com
Pakistan: Khan's China visit highlights dependence on Beijing
As Prime Minister Imran Khan prepares to visit China for the Winter Olympics, many believe that he is eyeing a major loan.
Local media reports say that Khan is seeking a $3 billion loan from China
Pakistani Prime Minister Imran Khan is visiting China this week to attend the opening ceremony of the
Winter Olympicsand meet with Chinese leaders.
A spokesman for Pakistan's Foreign Ministry told media on Friday that Khan‘s visit would reinforce the all-weather strategic cooperative partnership between the two countries, in addition to advancing the objective of building a closer
China-Pakistan bond with a shared future.
Khan's trip is his first in nearly two years. However, some people are skeptical over the reasons his visit.
Although Pakistani Foreign Minister Shah Mahmood Qureshi claimed last Thursday that the visit was aimed at expressing solidarity with Beijing, as some countries have boycotted the Olympics, some Pakistani media outlets report that Islamabad is eyeing a $3 billion (€2.6 billion) loan from China, the world's second-largest economy, after the United States, in addition to pinning hopes on Chinese investment into six sectors.
The English daily
Express Tribune reported a few days ago that the government was considering requesting that China approve another $3 billion loan, which could be kept in China's State Administration of Foreign Exchange (SAFE) so as to boost its foreign exchange reserves.
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Watch video05:12
Pakistan: Impact of the new Silk Road
Pakistan seeks investment in six industries
Islamabad is also seeking Chinese investment in the industries of textiles, footwear, pharmaceuticals, furniture, agriculture, automobile and information technology. The newspaper further wrote: "The government is expected to tell the 75 Chinese companies that it could provide access to trade routes to the Middle East, Africa and the rest of the world, offering greater incentives in the shape of reduction in freight costs."
Pakistan heavily relies on China for economic assistance and cooperation. The communist country has already pumped billions of dollars into the nation, under the China-Pakistan Economic Corridor. Islamabad completed a number of energy and infrastructure projects under the CPEC.
Economist Kaiser Bengali believes that Pakistan is now 100% dependent on China for financial and economic assistance. The immediate purpose of the visit is to seek the loan from Beijing, which reflects Pakistan's growing reliance on China, he told DW.
"While the conditions of the IMF are made public, China keeps the terms and conditions of loans and projects secret, which leads to suspicions," he said.
Many nationalists in Pakistan's western province of Balochistan are skeptical of the Chinese investment, which they say does not benefit the residents of the region which houses the Chinese-run strategic Gwader port.
The residents of Gwader recently erupted in protest against the scarcity of pure drinking water, complaining that Chinese investment did not help them get drinking water or improve the province in other ways.
Some Baloch nationalists fear that, if Pakistan defaults on loans, China would seek mining contracts in the mineral-rich province at an extremely discounted rate — or possibly take over the port.
Bengali said such suspicions were caused by the secrecy surrounding Chinese development projects and the terms of the loans.
During the Cold War, the United States was the main ally of Pakistan, supplying the country with weapons and military training. Islamabad also joined western military alliances to counter communism.
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Watch video01:30
CPEC: Imran Khan inaugurates first China-Pakistan power plant
Strained ties with West
Pakistan's ties with the United States remained somewhat strained during the 1990s, but the country again became Washington's ally in the war on terror after the September 11, 2001, attacks. However, following the US pull-out from Afghanistan, the South Asian country is now looking to the East for strategic alliances.
Talat Ayesha Wizarat, a Karachi-based expert in international relations, told DW that Pakistan is heavily dependent on China because the West did not turn out to be a reliable ally, abandoning Islamabad and cozying up to New Delhi, a common foe of both Pakistan and China.
Wizarat said loans from the International Monetary Fund came with strings attached, and added that Western-backed financial institutions asked about the details of CPEC projects.
She said China didn't put conditions on its loans. "It has already pumped billions of dollars into the CPEC but did not attach strings," Wizarat told DW.
The United States has no interest in the region after pulling out from Afghanistan, she said. As a result, she added,
Pakistan will need China's assistance to bolster its economy, stabilize Afghanistan, promote trade in the region and consolidate its defenses.
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Watch video03:19
Pakistani PM Imran Khan seeks Chinese loan
Pakistan offers access to Indian Ocean
Wizarat said
Pakistan could reciprocate by allowing China access to the Indian Ocean and supporting the country at international forums.
Many human rights organizations have, however, accused China of committing flagrant human rights violations against the Muslims of Xinjiang, but Khan recently defended Beijing, accusing the West of adopting a double standard when it came to the rights of Uyghurs in China and Muslims in Kashmir.
Meanwhile, Human Rights Commission of Pakistan co-chair Asad Butt told DW that this exposes the hypocrisy of Khan, amid reports that the Chinese government has been forcing Uyghur Muslims to consume foods that are forbidden in Islam, and interning more than 1 million people.
Butt said Khan had never uttered a word about the atrocities committed by China.
Edited by: Leah Carter
