Pakistan has initiated efforts to reprofile over $27 billion in debt and liabilities from China, Saudi Arabia, and the UAE. This move aims to secure a 37-month bailout package from the International Monetary Fund (IMF) and ease foreign exchange outflows in the energy sector, as well as consumer tariffs.
Finance Minister Muhammad Aurangzeb announced on Sunday that Pakistan has requested the three friendly nations to extend the maturity period of its annual $12 billion debt portfolio by three to five years. This extension is crucial for securing the IMF board’s approval for a $7 billion economic bailout expected next month.
Beyond this, Pakistan has also asked China to convert its imported coal-based projects to local coal and reprofile over $15 billion in energy sector liabilities. This request seeks to create fiscal space amidst difficulties in timely repayments.
Pakistan’s financial arrangements with these countries, involving commercial loans and SAFE deposits, are critical components of the IMF programme. The country has proposed extending the maturity period of these loans — $5 billion from China, $4 billion from Saudi Arabia, and $3 billion from the UAE — to at least three years, which would provide greater predictability under the IMF programme.
After a recent visit to China, Minister Aurangzeb reported positive discussions. The Chinese government acknowledged Pakistan’s foreign exchange challenges and expressed willingness to assist with new business ventures and reprofile energy sector payments. China also pledged to support Pakistan’s case at the IMF board as a significant stakeholder.
Aurangzeb mentioned that the debt and equity rescheduling process had begun and would proceed to working groups involving relevant financial institutions and Chinese project sponsors. Local Chinese consultants are being hired for this process.
“Between now and the IMF board meeting, we must secure confirmation of external financing from our bilateral partners,” Aurangzeb stated. He clarified that the Chinese energy sector debt reprofiling is separate from the IMF programme, with other prior actions completed and structural benchmarks in progress.
The finance minister assured that Pakistan is in a favourable position regarding external financing for the next three years. He emphasised that no additional financing is being sought; rather, the focus is on extending the maturity period of existing loans.
The discussions about energy sector repayments were initiated by Prime Minister Shehbaz Sharif during his visit to Beijing and continued with formal letters to Chinese Premier Li Keqiang. Aurangzeb, along with Power Minister Awais Leghari, held meetings with Chinese finance and energy ministers, as well as the governor of the Chinese central bank, to address Pakistan’s payment abilities, economic stability, and energy tariff relief.
The conversion of Chinese power projects to local coal and the financial reprofiling of these projects were key topics. Each project under the China-Pakistan Economic Corridor (CPEC) will undergo individual assessment due to its unique structure.
Aurangzeb noted that the debt of Chinese Independent Power Producers (IPPs) is manageable, with legal payments being made, but foreign exchange-related returns to project sponsors need rescheduling. He clarified that Pakistan is not seeking debt waivers or interest rate cuts, but rather an extension of payment schedules.
Highlighting the need for long-term structural solutions, Aurangzeb acknowledged the hardships faced by all segments of society due to high interest rates, energy prices, currency devaluation, and increased taxes. He emphasised the necessity of tough measures to address fiscal space limitations.
Pakistan is working with both the US and China to advance the second phase of CPEC, which includes relocating Chinese businesses to Pakistan. Meanwhile, the US remains Pakistan’s largest trading partner, and the European Union has provided GSP+ status to bolster Pakistan’s exports.
During his visit to China, Aurangzeb explored opportunities in the Chinese capital market through Panda bonds, planning to register for $1 billion equivalent but initially targeting $150-200 million. He encouraged industrialists to recognise Pakistan’s economic vulnerability to foreign exchange crises and avoid policies that could lead to import restrictions.
Aurangzeb expressed hope that stability in foreign exchange and macroeconomic indicators would improve Pakistan’s credit rating and pave the way for export-led growth and foreign direct investment (FDI). He also mentioned ongoing efforts to restructure public sector ministries to enhance efficiency and protect workers’ rights.
The government’s strategic measures aim to stabilise Pakistan’s economy and ensure sustainable growth amidst ongoing financial challenges.
