PAK in further quagmire of Chinese Debt
Dated : 14 Dec 2020 (IST)
Pakistan is in a serious debt crisis. As per the agreement, the Saudi had given cash and oil facility for one year with an option to roll over the amount at the end of the year for a period of three years.
The government has also not been able to get the suspended $6 billion IMF programme restored, which is making it difficult for it to continue uninterrupted foreign inflows.
Pakistan Prime Minister Imran Khan had visited Saudi Arabia twice to secure a loan. Saudi Arabia had agreed to provide $6.2 billion worth of financial package to Pakistan for three years. This included $3 billion in cash assistance and $3.2 billion worth of annual oil and gas supply on deferred payments.
However, due to certain actions of Pakistan, Saudi Arabia has asked back its money ahead of the schedule. Pakistan was paying 3.2 per cent interest on the $3 billion facility, according to the information that the Ministry of Finance shared with the Pakistan National Assembly.
The Saudi oil facility has already been suspended. While Pakistan has also paid back Saudi Arabia $1 billion out of the $3 billion in May this year. Pakistan returned $1 billion to Saudi Arabia after taking an equal amount of loan from China. Pakistan will be returning $1 billion on Monday and remaining $1 billion when due in January, said a report.
Pakistan already in debt of over 90 billion American dollars has now sunk in further into Chinese Debt. China is once again going to provide $1.5 billion financing line to repay the $2 billion Saudi Arabia debt.
Earlier in November, it was reported that Pakistan has decided to seek $2.7 billion loan from China for the construction of package-I of the Mainline-1 project of China Pakistan Economic Corridor (CPEC).
Though this time China has not provided the loan from its State Administration of Foreign Exchange commonly known as SAFR deposits nor it has given a commercial loan to Islamabad. This time both the countries have agreed to increase the size of a 2011 bilateral Currency-Swap Agreement (CSA) by an additional 10 billion Chinese Yuan or around $1.5 billion, the sources said.
This has increased the size of the overall trade facility to 20 billion Chinese Yuan or $4.5 billion.
The benefit of this arrangement will be that the additional $1.5 billion Chinese loan will not reflect on the book of the federal government and it will not be treated as part of Pakistan’s external public debt.
Pakistan paid Pakistani Rs 20.5 billion in interest to China on using the $3 billion trade finance facility in the last fiscal year alone, showed the central bank’s financial statement.
China has become Pakistan’s largest creditor for the past few years. The trade facility, originally meant to promote bilateral trade in respective local currencies, has been used for paying foreign debt.
The $3 billion money is part of the current $13.4 billion in foreign currency reserves held by the central bank, the State Bank of Pakistan (SBP) had confirmed to The Express Tribune last month.