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US concerned about debt Pakistan owes China, official says

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  • Derek Chollet is in Pakistan leading a high-ranking delegation. 
  • We wouldn’t ask Pakistan to choose between US, China, says official.
  • Says Washington working with Islamabad to navigate through current crisis.

ISLAMABAD: The United States is concerned about the debt owed to China by Pakistan and other countries, US State Department Counselor Derek Chollet said on Thursday during a visit to Islamabad as the country dealt with an economic crisis.

Pakistan, historically a close ally of Washington, has become increasingly close to China, which has provided billions in loans and is Islamabad’s largest single creditor. Pakistan faces a crippling economic crisis, with decades-high inflation and critically low foreign exchange reserves depleted by continued debt repayment obligations.

“We have been very clear about our concerns not just here in Pakistan, but elsewhere all around the world about Chinese debt, or debt owed to China,” Chollet told journalists at the US Embassy in Islamabad after he met with Pakistani officials.

China and Chinese commercial banks held about 30% of Pakistan’s total external debt of about $100 billion, according to a report by the International Monetary Fund (IMF) released in September last year.

Much of that debt has come under the China-Pakistan Economic Corridor, part of Beijing’s Belt and Road Initiative.

Cholett said Washington was talking to Islamabad about the “perils” of a closer relationship with Beijing, but would not ask Pakistan to choose between the United States and China.

Relations between Islamabad and Washington had turned frosty over the war in Afghanistan, but there has been a thaw in recent months, with an increasing number of high-level visits.

Officials from China and the United States will be part of a multi-country meeting of a new sovereign debt roundtable on Friday.

G7 and multilateral lending institutions have long pushed for broad efforts to deliver debt relief to heavily indebted nations to help them avoid cuts in social services that could spur social unrest.

US Treasury Secretary Janet Yellen and other G7 officials see China, now the world’s largest sovereign creditor, as a key stumbling block in debt-relief efforts.

Chollet said the US was working with Pakistan to navigate through the current crisis.

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Pakistan receives a $2 billion loan from China, according to the finance minister

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The $2 billion loan was one year ahead of schedule and became due in March. According to reports, Beijing had informed Islamabad of the decision.

The International Monetary Fund granted Pakistan’s cash-strapped economy a $3 billion standby arrangement last summer, but the country is still battling to recover from the financial crisis.

According to ratings firm Fitch, one of the top concerns confronting the next administration would be obtaining funding from bilateral and multilateral partners due to Pakistan’s precarious foreign situation, as was stated last week.

This event occurs one month after Anwaar-ul-Haq Kakar, the acting prime minister, asked for a $2 billion loan to be rolled over for a year in a letter to his Chinese counterpart.

In his letter, Kakar also expressed gratitude for China’s efforts to lessen Pakistan’s load

of foreign payments.

It is to be noted that Pakistan acquired safe deposits of $4 billion from China to address the balance of payments issue.

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“Ready to work with Pakistan’s new government,” the IMF said.

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In response to the former premier’s request, IMF Director of Communications Julie Kozak stated, “I’m not going to comment on ongoing political developments,” during a news conference.

She continued by saying that they “look forward to working on policies to ensure macroeconomic stability and prosperity for all of Pakistan’s citizens with the new government.”

In addition to stating that the plan is “supporting the authority’s efforts to stabilise the economy and to, of course, with a strong focus on protecting the most vulnerable,” Kozack said the lender increased the total disbursements under the Standby Arrangement (SBA) to $1.9 billion.

This has been accomplished by closely adhering to budgetary constraints and safeguarding the social safety net. In order to keep foreign exchange reserves growing and rein in inflation, a strict monetary policy stance has been maintained, the speaker stated.

The PTI founding chairman decided to write a letter to the international lender, asking it to demand an audit of the election held on February 8 before it proceeds with discussions with Islamabad for a new loan programme. This move prompted the IMF to release its statement.

In response to the former premier’s request, IMF Director of Communications Julie Kozak stated, “I’m not going to comment on ongoing political developments,” during a news conference.

She continued by saying that they “look forward to working on policies to ensure macroeconomic stability and prosperity for all of Pakistan’s citizens with the new government.”

In addition to stating that the plan is “supporting the authority’s efforts to stabilise the economy and to, of course, with a strong focus on protecting the most vulnerable,” Kozack said the lender increased the total disbursements under the Standby Arrangement (SBA) to $1.9 billion.

This has been accomplished by closely adhering to budgetary constraints and safeguarding the social safety net. In order to keep foreign exchange reserves growing and rein in inflation, a strict monetary policy stance has been maintained, the speaker stated.

The PTI founding chairman decided to write a letter to the international lender, asking it to demand an audit of the election held on February 8 before it proceeds with discussions with Islamabad for a new loan programme. This move prompted the IMF to release its statement.

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In a new IMF agreement, Pakistan would “raise” the FBR tax-to-GDP ratio to 15%.

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The state bank reserves will be maintained at a level equivalent to three months’ worth of import bills, according to sources in the Finance Ministry.

According to sources, the ministry has also set a goal to maintain the primary balance surplus and reduce the current account deficit.

The ministry insisted that once the existing agreement expires, a new one would be negotiated with the IMF, and that the IMF will also be guaranteed that the requirements will be implemented prior to the agreement being finalised.

The founder of Pakistan Tehreek-e-Insaf (PTI) demanded that an audit of the election results be conducted before the International Monetary Fund (IMF) approved any additional loans for Islamabad. However, the IMF showed earlier today that it was eager to cooperate with the new administration in Pakistan by disregarding the demand.

According to Bloomberg News yesterday, Pakistan is to apply for a fresh $6 billion loan from the International Monetary Fund to assist the next government in paying off billions of dollars in debt that comes due this year.

According to the article, the nation would attempt to negotiate an Extended Fund Facility with the IMF, and it was anticipated that discussions with the international lender would begin in March or April.

Thanks to a short-term IMF bailout, Pakistan avoided defaulting last summer. However, the plan expires next month, and the next administration will need to negotiate a long-term deal to keep the $350 billion economy steady.

The IMF forced the South Asian country to enact a number of reforms prior to the rescue, including raising its benchmark interest rate, changing its budget, and raising the cost of natural gas and electricity.

According to a fund spokeswoman, the IMF staff is still in communication with authorities on the necessary longer-term reform initiatives. The fund is also prepared to assist the post-election government in addressing Pakistan’s ongoing issues by means of a new arrangement, should that request be made.

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