Chi­nese loans

The Pak Banker - - FRONT PAGE -

China is now the big­gest lender to Pak­istan, in­clud­ing both pub­lic and pri­vate debt, but no fig­ures are avail­able about the amount of debt Pak­istan owes to China. An es­ti­mate is that around $19-20 bil­lion out of $90 bil­lion to­tal debt and li­a­bil­i­ties of Pak­istan is Chi­nese i.e. over one fifth of the over­all debt. Ac­cord­ing to the SBP an­nual re­port, China bi­lat­eral debt to the gov­ern­ment stood at $7.2 bil­lion by Jun17.

This has in­creased by over $3 bil­lion (from $4bn in Jun13) in the last four years. And now, China has sur­passed Ja­pan to be­come the sin­gle big­gest bi­lat­eral lender to Gov­ern­ment of Pak­istan. Apart from bi­lat­eral debt, Pak­istan cur­rency swaps (which only ex­its with China) in Jun17 stood at $1.5 bil­lion which brings the debt tally to $8.7 bil­lion. The cen­tral bank safe de­posit stood at $0.7 bil­lion which is most likely pro­vided by none other than China. That takes the to­tal num­ber to $9.4 bil­lion.

A de­tailed anal­y­sis shows ICBC Pak­istan branch has taken debt of $2.7 bil­lion from the par­ent com­pany by June 17. They brought the dol­lars in Pak­istan and have done swap to run the op­er­a­tions in ru­pees. This takes the loan amount to $12.1 bil­lion. China also hap­pens to be the big­gest lender to the pri­vate sec­tor as well. There is no di­rect num­ber to reach the Chi­nese loan to Pak­istan pri­vate sec­tor; but vir­tu­ally all the in­crease in the last three years has come from China. The to­tal pri­vate sec­tor ex­ter­nal loan in­creased from $3 bil­lion in Jun15 to $7.2 bil­lion in Dec17.

This is an un­prece­dented growth and mostly came in terms of IPPs' fi­nanc­ing un­der CPEC and other projects. A rea­son­able es­ti­mate is that out of $4.2 bil­lion in­crease in last 30 months, $3.5 bil­lion is from China.

In ad­di­tion to this, the debt li­a­bil­i­ties to di­rect in­vestors stood at $3.5 bil­lion. This amount is loaned to for­eign in­vestors op­er­at­ing in Pak­istan. The big­gest in­vest­ment by a for­eign com­pany in the last few years is from China Mo­bile and by a con­ser­va­tive es­ti­mate, $1.5 bil­lion is the loan to China Mo­bile. Adding $1.5 bil­lion to $15.6 bil­lion takes the toll to $17.1 bil­lion. Now most of these num­bers are based on June 2017 and Pak­istan's to­tal ex­ter­nal debt and li­a­bil­i­ties in­creased from $83.1 bil­lion then to $88.9 bil­lion by Dec17. The debt has rapidly in­creased by $5.8 bil­lion in the last six months and is still grow­ing.

It is safe to es­ti­mate that Chi­nese li­a­bil­i­ties have reached $19 bil­lion. The need to raise fur­ther debt to­day is press­ing for the econ­omy to con­tinue the growth path. Cur­rently, west­ern mul­ti­lat­er­als and oth­ers are tight­en­ing their grip on Pak­istan be­cause of fall­ing im­port cover. In or­der to con­tinue the growth mo­men­tum, Chi­nese loans are im­per­a­tive. But go­ing back to the IMF is also in­evitable which will surely hurt the growth mo­men­tum. Based on the above cal­cu­la­tion, roughly speak­ing, $10 bil­lion debt is CPEC re­lated fund­ing and $3-4 bil­lion came as FDI un­der CPEC. This is mere one fourth of the to­tal CPEC com­mit­ments and both Chi­nese in­vest­ment and loans are bound to in­crease in next five years.

Need­less to say, the present debt ac­quir­ing strat­egy is coun­ter­pro­duc­tive in the long run. As it is, Pak­istan's debt fu­eled growth is not sus­tain­able and the coun­try would find it re­ally dif­fi­cult to re­pay the loans. It is there­fore im­por­tant that we de­velop al­ter­na­tive ways to meet our de­vel­op­ment needs, spe­cially ex­ports which have de­clined steeply in the last four years.

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