Prime Minister Shehbaz Sharif said that he had written to the Chinese government asking for a reprofiling of the debt owed to China for CPEC power projects so that Pakistan was spared having to repay $5 billion next year. This request has moved from a good thing to an essential because the IMF has made it a condition of its latest package. Along with the rollovers of the $4 billion deposited with the State Bank of Pakistan and the UAE’s $3 billion. The money from China has gone into power projects, while the Saudi and Emirati money has been used to prop up forex reserves, and were given on the understanding that they would not be used for meeting Pakistan’s import obligations. The putting off of Chinese powerproject debt will be combined with switching coal-fired generation plants from imported to local coal, making it possible to save foreign exchange. This will improve the country’s trade balance, and will also allow some reduction in the electricity tariff. That has been brought into focus by the recent protests led by the Jamaat Islami, and about which a Senate panel warned could result in violent protests.
Though it would be welcome if indeed matters were to transpire as Mr Sharif outlined, there is still the impression of bandaids being applied to gaping wounds. No matter how things are played out, the depositas will have to be returned sooner or later, and the Chinese power debts repaid. The only way of doing so would be for Pakistan to develop a trade surplus so large that it could not only pay for its imports but also service its debts. The excuse for previous loans was development, which was supposed to lead to increased exports, and the debt would thus be repaid. Unfortunately, the aid was used by the lenders for velite capture, and the money was embezzled by the political masters of the time, in exchange for their guardianship of the lenders political interests.
That may be happening again, as Pakistan finds itself having to balance Chinese interests on one hand, and Saudi and Emriati on the other, which would be inclined towards the USA in its ongoing clash with China. This may seem remote from Pakistan’s foreign exchange problems, or its being in a debt trap, but that is how the matter will play out, in foreign capitals as well as IMF headquarters.
