Pakistan’s already fragile economy suffered another blow when China recently demanded a repayment of USD 55.6 million by November 2023 for the Lahore Orange Line project, Italian publication Osservatorio Globalizzazione reported.
Meanwhile, at the end of March, the foreign exchange reserves held by the State Bank of Pakistan fell sharply by USD 2.915 billion, due to repayment of foreign debt. Thus, the economic future of Pakistan is bleak as far as relations with China are concerned.
The Chinese company, China-Railway North Industries Corporation (CR-NORINCO) which completed the Lahore Orange Line project in 2020, has sought dues of USD 45.3 million from the Punjab Mass Transit Authority and the remaining dues by the end of March 2023 Is. USD 10.5 million by the end of the year. CR-NORINCO has insisted that all dues must be paid before the expiration of the contract on 16 November 2023, Osservatorio Globalizzazione reported.
China has struck a tough deal with Pakistan when it comes to making payments on its loans and other investments in Pakistan. In the financial year 2021-2022, Pakistan paid about USD 150 million as interest to China for accessing the USD 4.5 billion Chinese trade finance facility. In the financial year 2019-2020, Pakistan paid USD 120 million as interest on USD 3 billion in loans.
The Chinese demand for the Lahore Line payment was made in the first week of April 2022 when the new political system under the leadership of Prime Minister Shahbaz Sharif took over. Earlier, in early March 2022, China accepted Pakistan’s request to roll out debt repayment of USD 4.2 billion to provide a major relief for its all-weather ally, Osservatorio Globalizzazione reported.
China has been very strict in extorting money from Pakistan. Take Pakistan’s energy sector for example, where Chinese investors have repeatedly insisted on resolving issues related to existing project sponsors in order to attract new investments.
Some Chinese projects in Pakistan are facing problems in securing insurance for their loans in China due to the massive energy sector circular loan of around USD 14 billion in Pakistan.
Pakistan is to pay around USD 1.3 billion to Chinese power producers and only USD 280 million has been paid so far. Another example of hard bargaining by China over monetary transactions with Pakistan is well documented in the case of the Dasu Dam project. Last year, China had sought USD 38 million as compensation for the families of 36 engineers killed in the Dasu Dam terror attack.
Compensation was made a precondition for the resumption of work on the project. To pacify China, Pakistan later agreed to pay USD 11.6 million as compensation.
While China is heavily responsible for Pakistan’s debt problem, it has led to the current impasse due to mismanagement of Pakistan’s economy by successive governments.
Extensive loans from China, Saudi Arabia and Qatar, as well as 13 loans from the IMF over 30 years (most loan programs were halted midway for failure to meet loan terms), a major cause of the economic slowdown reason.
The 2019 USD 6 billion IMF loan is also on hold, and China has settled Pakistan’s persistent requests for help.
This strategy has not paid dividends and is only putting Pakistan in debt. Pakistan should closely monitor developments in Sri Lanka, as it could be the next country to face the consequences of poor economic policies and heavy debt burden, reported the Osservatorio Globalizazione.
(Except for the title, this story has not been edited by NDTV staff and is published from a syndicated feed.)