The International Monetary Fund has revealed that Pakistan owes $18.4 billion or one-fifth of its external public debt to China, which is not only $4 billion higher than the officially reported figures but is also the highest lending by any single country or financial institution.

In its new report on Pakistan, the IMF has also significantly revised upwards its projections of Pakistan’s external public debt, total external debt and the gross foreign financing needs. These adjustments have been made to meet the yawning requirements of the current account deficit, the IMF report showed.

The IMF report stated that Pakistan took $18.4 billion loan from China – a figure that is $4 billion higher than what the Ministry of Finance reported in the statistical supplemental of the Economic Survey of Pakistan 2020-21, released last month.

The IMF has made the $4 billion loan given by China to stabilise the foreign exchange reserves part of the external public debt as of June 2021.

The amount of $18.4 billion is equal to 20 percent of the external public debt reported by the IMF in its report. It is also the highest amount given by any country or an institution. The World Bank’s outstanding debt towards Pakistan was $18.4 billion by end of the last fiscal year.

The western countries and the international financial institutions have been closely watching Pakistan’s financial relations with China, particularly after the China-Pakistan Economic Corridor.

The IMF has released the report at a time when Prime Minister Imran Khan is in China and is expected to seek a bigger bailout package, including $4 billion debt rollover and augmentation of the existing foreign currency swap arrangement to $10 billion.

The report further showed that the foreign public debt would jump to $103 billion by end of the next fiscal year – showing an addition of nearly $31 billion during the tenure of the incumbent government.
In 2017-18, the external public debt was $72.5 billion which has been growing with every passing year due to faster growth in imports as compared to exports.

Just 10 months ago, the IMF had projected the external public debt at $92.3 billion, which it has now adjusted upwards along with showing larger current account deficit and the external financing needs.

The current account deficit that the IMF had shown at $5.4 billion at the conclusion of the 5th review in March last year for the current fiscal year is now projected at $13 billion.

However, the new deficit figure seems unrealistic, even lower than the State Bank of Pakistan’s projections.

The money that now Pakistan needs to pay for foreign loans and the cost of imports is also shown at the higher end of $30.4 billion. The gross financing needs are also revised upwards by $6.8 billion by the IMF within 10 months.

Pakistan largely bridges this gap by taking foreign loans, as the share of foreign direct investment is estimated at only $2.3 billion for the current fiscal year.

The IMF said that the forward-looking path for gross financing needs has been revised upwards due to larger-than-expected reliance on short-term domestic issuance since late March 2021. But it said that the public debt and gross financing needs to the gross domestic product are projected to firmly decline over the medium-term.

The IMF stated that Pakistan was engaged with external creditors to secure financing to meet the programme’s debt sustainability objectives.

It added that China has maintained its exposure by renewing and augmenting the $4.6 billion swap as well as by renewing maturing commercial loans, though some at shorter maturity.

China also provided an additional $1 billion loan in July 2020 through the State Administration of Foreign Exchange, raising its deposits to $4 billion.

Recently, Pakistan has also secured a $3 billion deposit at the central bank and a deferred oil financing facility from Saudi Arabia.

The global lender said that macro-fiscal shocks continue to pose a risk in the medium-term to Pakistan’s debt sustainability, despite an improvement in the debt profile.

The most extreme shock to medium-term debt dynamics would emanate from a large and sustained real interest rate shock, it added.
The contingent liabilities from loss-making SOEs— to the extent not covered by government guarantees—continue to represent additional risks to debt sustainability, it added.


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