(Bloomberg) — Pakistan needs to repay China more than double the amount it owes the International Monetary Fund in the next three years, as loans racked-up to boost foreign exchange reserves and bridge a financing gap become due.
The South Asian nation owes $6.7 billion in commercial loans to China over the three years through June 2022, according to the IMF, which this year approved a new program to bail out Pakistan from a crisis. Islamabad needs to pay the multilateral lender $2.8 billion in the same period.
Pakistan, one of the biggest beneficiaries of China’s Belt and Road Initiative, has been borrowing from Beijing to tide over a financial crisis. Still, the money was enough to only partly bridge a financing gap, pushing the South Asian nation to knock at the IMF’s doors.
Read: IMF Agrees to $6 Billion Bailout to Help Pakistan Ease Crisis
“The borrowing picked up after the Belt and Road started,” said Hafiz Faizan Ahmed, head of research at Karachi-based Optimus Capital Management Pvt. “A bulk of the Chinese lending happened about two years ago when dollar reserves were dwindling, so the government kept borrowing and borrowing.”
A report last year by the Center for Global Development listed Pakistan among eight nations that face potential debt-sustainability problems because of the belt-road plan.
“In a way it’s gone wrong for Pakistan,” said Burzine Waghmar, a member of the Centre for the Study of Pakistan at SOAS University of London. “Enthusiastically taking Chinese money, they looked at the short-term deals for shoring over the financial crisis, without realizing its medium- and long-term implication, and the Chinese leverage over Pakistan. And it has painfully come home to be realized.”
To contact the reporter on this story: Faseeh Mangi in Karachi at [email protected]
To contact the editors responsible for this story: Nasreen Seria at [email protected], Karthikeyan Sundaram, Subramaniam Sharma
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