ISLAMABAD: In a significant development, China has agreed to reschedule over $2 billion of Pakistan’s publicly guaranteed debt, extending the repayment period by two years. This move comes as a major relief to the Pakistani government, which has been working on rebuilding foreign exchange reserves and managing maturing debt through fresh loans.
ECC Approves Revised Agreement
The Economic Coordination Committee (ECC) of the Cabinet held a meeting on Thursday, where the revised terms of the agreement between Pakistan and China were approved. Finance Minister Ishaq Dar chaired the meeting.
Background of the Debt
The debt in question stems from China’s financing of two nuclear power plants in Karachi, with a combined generation capacity of 2,117 megawatts. The total cost of these plants was $9.5 billion, with China providing $6.5 billion in funding through the Export-Import (Exim) Bank of China.
Deferment of Repayments
Out of the total $2 billion debt, more than $625 million was initially set to mature during the current fiscal year. However, in light of the agreement reached, these repayments will now be paused. Additionally, China has agreed to a pause on the repayment of the remaining $2 billion, which was originally scheduled to mature within the next two years, according to senior Pakistani officials.
China’s Ongoing Support
China has consistently supported Pakistan in meeting its debt obligations, providing new loans, and facilitating the rollover of existing debt. Earlier this year, China took proactive measures to refinance $1.3 billion of commercial loans, preventing Pakistan from defaulting on its international debt obligations when the International Monetary Fund (IMF) program was stalled.
Boost in Foreign Exchange Reserves
The debt rescheduling comes at a crucial time for Pakistan, as the country has successfully secured a new IMF program. Consequently, Pakistan’s gross official foreign exchange reserves have rebounded to $8.7 billion, a substantial improvement from the critically low levels of $4.5 billion before the IMF deal.
Other ECC Approvals
In addition to approving the revised debt agreement with China, the ECC also granted a Rs200 million technical supplementary grant to the Special Investment Facilitation Council (SIFC). The council, established to attract foreign investment in various sectors, has been awaiting budget allocation to commence its operational activities.
Furthermore, the ECC greenlit several proposals, including charging electricity rates for cinema houses to support the film industry’s revival, exporting vegetable ghee/cooking oil to Afghanistan through land routes, and revising cess rates for tobacco.
Sui Mining Lease Issue Deferred
However, the ECC deferred a proposal from the Petroleum Division regarding the issue of the expired lease of Sui mining. Before finalizing any decision in this regard, the government of Balochistan will consult.
China’s decision to reschedule Pakistan’s debt and the ECC’s approval of the revised agreement bring much-needed stability to Pakistan’s economic situation.Pakistan, with an improved foreign exchange reserve position and ongoing support from China, is better equipped to manage its financial challenges and foster investment opportunities for economic growth.
