China may not bail out ‘Iron Brother’

Pakistan has requested China to rollover its $6.3 billion debt that is maturing in next eight months as part of its overall plan to arrange $34 billion in the current fiscal year to meet its debt and external trade-related obligations, local media reported. Another proposal was also under consideration to seek a fresh Chinese loan to repay the maturing bilateral debt during the fiscal year 2022-23, ending on June 30, The Express Tribune reported.

The issue of rollover and refinancing of nearly $6.3 billion commercial loans and the central bank debt was discussed in a meeting between Chinese Ambassador to Pakistan Nong Rong and Finance Minister Mohammad Ishaq Dar. The $3.3 billion Chinese commercial loans and three $3 billion worth SAFE deposits loans were maturing from now till June next year, according to the Ministry of Finance officials, The Express Tribune reported.

The SAFE deposit is on the balance sheet of the central bank. In addition to this, over $900 million bilateral Chinese debt was becoming due during the current fiscal year. For the current fiscal year, the International Monetary Fund and the Ministry of Finance have estimated Pakistan’s gross external financing requirements in the range of $32 billion to $34 billion, excluding the impact of the recent devastating floods.

Pakistan has already obtained $2.2 billion loans during July-September quarter while Saudi Arabia has also announced to roll over $3 billion debt maturing in December this year. The country still needs to arrange $29 billion and it is looking for minimum $6.3 billion to $7.2 billion rollovers from China in addition to any fresh lending.

Will China come to the rescue of cash-starved Pakistan, which is inching closer to a default amid delay in revival of the $6.5 billion loan from the International Monetary Fund (IMF) China has not made any statements over the deepening political crisis in the South Asian nation but concerns have risen.

“China’s stakes in Pakistan are high. It also needs Pakistan to contain India but the moot question is whether Beijing will be willing to completely bailout Pakistan. That is a matter of debate,” an analyst told India Narrative. Global ratings agency Moody’s has already warned that Pakistan may default if it fails to receive the IMF’s bailout package. Despite hectic parleys, the two have not yet reached any consensus. And now with the political turmoil, Pakistan’s hopes of thrashing out an agreement with IMF is fading. In this situation, Pakistan will have no other choice but to reach out to its allies, particularly China, which has its flagship China Pakistan Economic Corridor (CPEC) running through the South Asian country.

While China refrained from offering any substantial financial support to the bankrupt Sri Lanka, Pakistan’s case may be different as Beijing will have its own interests to protect. However, analysts said that China is currently focusing on putting its own house in order and therefore may be able to provide only “some help” but not pull Pakistan “completely out of the danger”. “China does not have the kind of warewithal that is required to rescue Pakistan. Only an IMF can do that. At most China can offer some help that can pull Pakistan for a few more months,” the analyst said.

China’s challenges

Multiple economic challenges have also hit China since the Covid outbreak. The steady rise in debt-public as well as private-has become a cause for serious concern for Beijing. China’s overall debt is difficult to assess as a large part of it is borne by the local governments and state-owned enterprises. Forbes noted that the size of China’s debt problem is truly staggering. “At last measure, debt of all sorts - public and private and in all sectors of the economy - amounted to the equivalent of $51.9 trillion, almost three times the size of China’s economy as measured by the country’s gross domestic product,” it said.

To add to the problem, its own economic growth is slowing down with unstable macro-economic indicators. In April, the country’s S&P Purchasing Managers’ Index accorded by S&P for manufacturing once again fell below the 50 mark to 49.5 indicating uneven recovery trends.

China lending to other countries

News agency Reuters said that between 2008 and 2021, China spent $240 billion bailing out 22 countries which are its exclusive debtors and play a large role in its ambitious Belt and Road infrastructure (BRI) project. These countries include Pakistan, Argentina, Kenya and Turkey.

According to data website Statista, at the end of 2021, of the 98 countries for whom data was available, Pakistan owed $27.4 billion of external debt to China, Angola $22.0 billion and Ethiopia $7.4 billion. Several countries including Kenya, Djibouti, Angola, Maldives, Laos and Sri Lanka are among the countries which have received Chinese loans. The Committee for the Abolition of Illegitimate Debt (CadTM) said between July 2021 and March 2022, over 80 per cent of Pakistan’s bilateral debt service went to Beijing.