Home » Mired in a Chinese debt Pakistan is going Sri Lanka’s way

Mired in a Chinese debt Pakistan is going Sri Lanka’s way

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International

oi-Vicky Nanjappa

| Published: Saturday, June 18, 2022, 14:16 [IST]

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Islamabad, Jun 18: An Italian publication has said that Pakistan is blindly following Sri Lanka's path, which will lead the country to fall into the Chinese debt trap.

The already fragile economy of Pakistan suffered yet another set back when China recently demanded $55.6 million in repayment for the Lahore Orange Line Project by November 2023, the publication Osservatorio Globalizzzazione said.

Mired in a Chinese debt Pakistan is going Sri Lanka’s way Representational Image

At the end of March, the foreign exchange reserves held by the State Bank of Pakistan fell by a massive $2.915 billion due to repayment of external debt.

The Chinese company China Railway North Industries Corporation which completed the Lahore Orange Line Project in 2020 has demanded from the Punjab Mass Transit Authority an outstanding sum of $43 million by the end of March 2023 and the remaining outstanding of $10.5 million by the end of the year.

Osservatorio Globalizzzazione reported that the Chinese company has insisted that all the dues be repaid before the expiry of the contract on November 16 2023. When it comes to paybacks, China has made a hard bargain with Pakistan. In 2021-2022, Pakistan repaid around $150 million towards interest to China for using a $4.5 billion Chinese trade finance facility. In 2019-2020, Pakistan $120 million towards interest on $3 billion loans.

China had first made the demand for the repayment towards the Lahore project in April 2022 at a time when the new political dispensation under Prime Minister Shahbaz Sharif had just stepped into office. In March 2022 China had acceded a request by Pakistan to roll over a $4.2 billion debt repayment to provide major relief, Osservatorio Globalizzzazione also said

China has been insisting on resolving issues relating to existing project sponsors in order to attract fresh investment in Pakistan's energy sector. Due to Pakistan's massive energy sector circular debt of around $14 billion some Chinese projects in Pakistan are facing problems in securing insurance for their loans.

Pakistan owned Chinese power producers around $1.3 billion Pakistani Rupees of which just $280 million has been paid.

Take the case of the Dasu Dam Project in which China had last year demanded $ 38 million towards compensation for the families of 36 engineers who had died in a terror attack. China made compensation as a pre-condition for resumption of work on the project. Pakistan subsequently agreed to pay $11.6 million as compensation.

The economic downturn in Pakistan is a major cause of concern for the country. China is heavily responsible for Pakistan's debt problems. However subsequent governments have mishandled the economy and this has led to the current situation. Pakistan has taken loans not only from China, but from Saudi Arabia and Qatar as well. It has also taken 13 loans from the IMF over the past 30 years.

Most of the loan programmes have been called off mid-way for failure to fulfil loan conditions.

Pakistan would be closely watching the developments in Sri Lanka as it could become the next country to face the consequences of a bad economic policy and heavy debt burdens, Osservatorio Globalizzzazione also reported.

Story first published: Saturday, June 18, 2022, 14:16 [IST]

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