Cash-strapped Pakistan looks to secure USD 3-billion loan from China

Cash-trapped Pakistan is looking to secure a USD 3-billion (PKR 529 billion) loan from China and investments in half a dozen sectors during Prime Minister Imran Khan’s visit to Beijing next week, according to a media report on Sunday.

Khan will visit the Chinese capital on February 3 to attend the opening of the Beijing Winter Olympics and to also meet the top Chinese leadership on the sidelines for bilateral talks.

The Express Tribune reported quoting government sources that a final meeting to shape the agenda of the visit would take place on Tuesday.

A senior finance ministry official said the government was considering requesting China to approve another loan to the tune of USD 3 billion in China’s State Administration of Foreign Exchange, known as SAFE deposits, so as to boost its foreign exchange reserves.

China has already placed around USD 11 billion (PKR 1.940 trillion) with Pakistan in the shape of commercial loans and foreign exchange reserves support initiatives, including USD 4 billion (PKR 705 billion) in SAFE deposits.

The Chinese money is part of the country’s current official foreign exchange reserves recorded at USD 16.1 billion (PKR 2.8 trillion).

In the last fiscal year, the country had paid over PKR 26 billion in interest charges to China only for using a USD 4.5 billion (PKR 794 billion) Chinese trade finance facility to repay the maturing debt.

Last month, Pakistan also received a loan from Saudi Arabia of USD 3 billion (PKR 529 billion), which the country has used. The Pakistan government aims to secure Chinese investment in six priority sectors by highlighting the competitive advantages that the country – cheap but skilled labour, geographic access to Europe and Asia and tax exemptions.

”We will market textile, footwear, pharmaceutical, furniture, agriculture, automobile and information technology sectors for Chinese investment,” said Chairman of Board of Investment Azfar Ahsan.

The government is expected to tell the 75 Chinese companies that it provided access to trade routes to the Middle East, Africa and the rest of the world – offering greater incentives in the shape of reduction in freight cost.

”Unlike in the past when we would only talk about Pak-Sino friendship being higher than the Himalayas and sweeter than honey, this time we are going to prepare for China with a structured approach,” Federal Planning and Development Minister Asad Umar told The Express Tribune.

He added that with the involvement of the China Pakistan Economic Corridor (CPEC) Authority the government had selected those sectors for foreign investment where there was evidence of huge benefits for Chinese investors.

Pakistani authorities said they believe its labour is two-times cheaper than that of China. This offers a greater opportunity for relocation of the dying Chinese industries.

However, all these areas and the competitive advantages are already known to the investors but they remain reluctant to bring in “big money” to Pakistan because of its inconsistent fiscal and energy policies.

China has decided to move into a more sophisticated and high-tech-driven textile and apparel industry and engage in more value-added functions under its 2021-25 plan.