Pakistan has sought reprofiling of more than $27 billion in debt and liabilities with friendly nations — China, Saudi Arabia, and the UAE — to secure a 37-month International Monetary Fund (IMF) bailout package and ease energy sector foreign exchange outflows and consumer tariffs, according to a report in Dawn.
Prime Minister Shehbaz Sharif said that he had written a letter to the Chinese government requesting debt reprofiling for Pakistan in an apparent bid to secure the International Monetary Fund’s approval for a $7 billion economic bailout by next month.
“I have written a letter to China, it’s a matter of public domain now, for debt reprofiling,” Shehbaz Sharif said in an address to his cabinet on Friday. This is on top of Islamabad’s request to Beijing to convert imported coal-based projects to local coal and reprofile more than $15 billion in energy sector liabilities.
German News outlet DW quotes data saying that from 2022, Pakistan had $26.6 billion worth of Chinese debt, more than any other country in the world. DW quoted an economist, Safiya Aftab, as saying that the interest rates on Chinese loans are not concessional.
“These loans were given for infrastructure, which in theory is supposed to start generating returns. The main issue in my opinion is Pakistan’s poor absorption capacity. The government was not able to progress on projects according to schedule. The more relaxations and extensions available, the better it is for Pakistan. China, aware of Pakistan’s financial struggles, often provides breathing space but occasionally leverages this debt for its interests,” Khalid was quoted as saying.
Debt reprofiling is a strategy used to restructure a country’s existing debt obligations. It involves extending the maturity dates of debt, reducing interest rates or altering other terms of the debt agreements to make repayment more manageable.
The IMF previously raised concerns about Pakistan’s external financing gaps. The Shehbaz Sharif government is also under immense pressure to bring down electricity prices by entering into negotiations with power producers.
The high cost of electricity has caused massive protests in the country. Protesters, who have taken to the streets want the government to withdraw taxes imposed on power consumption which have triggered a massive hike in bills.
The protests against the high cost of electricity are being led by Jamaat-e-Islami (JI) causing the shutting down of a major road to Islamabad, while protests were held in several other cities as well by traders. During the last fiscal year that ended on June 30, the Pakistan government approved a 26 per cent increase in the cost of electricity.
On July 13, the public, which was already bearing the brunt of rising inflation, suffered another blow after the Shehbaz administration tacked on another 20 per cent hike. Under pressure, Shehbaz Sharif has agreed to commit to lower electricity prices saying, “Doing politics on the electricity issue is tantamount to humiliating people, the government needs to lower electricity prices to boost exports”.
For the beleaguered Shehbaz Sharif, the troubles keep mounting. Last week a Gallup survey showed that business owners in Pakistan have become more pessimistic about their future because of continued political turmoil and the new tax-heavy budget.
With the Jamaat-e-Islami questioning the government for dragging its feet on critical decisions regarding Independent Power Producers (IPPs) and the Pakistan Tehreek-e-Insaaf also scheduled to hold protests the Shehbaz Shari government is in for some tough times.
According to the World Bank, debt reprofiling refers to “modifications of the aggregate schedule of future country repayments through refinancing, debt substitution, or renegotiations. ”The process can help a country if it’s facing simultaneous maturity of multiple loans or experiencing exposure issues, such as in the currency composition of its liabilities. It can also help a country mitigate currency risk, which frequently exacerbates debt sustainability issues.
PM Shehbaz informed members of the cabinet that Chinese President Xi Jinping had shown “keen interest in his idea” of using local coal to cut down imports. ”I told the president that Thar coal could help the country cut down on imports and save $1 billion in foreign exchange,” the PM said.
He also pointed out that Finance Minister Muhammad Aurangzeb had “very good meetings” in China during his recent visit, noting that efforts were underway to implement structural reforms for reducing circular debt.
”Whether consumers are industrial or household, the government of Pakistan is fully struggling day and night to extend relief,” he said, “This is the joint voice of all parties and the nation. ”Earlier, he had commended friendly ties with China.
”Nobody was ready to invest in our energy sector at the time, but China stepped in and began CPEC, it was the only country to intervene,” he had said, crediting ex-premier and PML-N President Nawaz Sharif’s government for signing the agreements for the infrastructure.
Moreover, he said that the medium-term measures for the government included addressing loans and capacity charges. According to state-owned Radio Pakistan, PM Shehbaz, while talking to a high-level Chinese delegation, informed them of the federal cabinet’s decision to exempt Chinese citizens from visa fees with effect from August 14.
The premier also said that joint ventures between the two countries in the fields of mines and minerals, information technology, export zones, industrial zones, and relocation of industry from China will further strengthen the local economy.
