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Pakistan’s Struggles to Keep China Happy Despite Financial Struggles

September 20, 20224 Mins Read
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Pakistan’s Struggles | Although it has pledged to pay four Chinese power producers $200 million, this is still a small portion of the debt owing to China. Once more promising to begin paying China’s independent power producers (IPPs) established under the China-Pakistan Economic Corridor, the Pakistani government (CPEC). Additionally, it has said that a monthly method for paying Chinese investors who are active in Pakistan’s energy industry on a regular basis has been finalised.

In order to prevent four Chinese power producers from going into default, Pakistan has pledged to pay $200 million to them in the first phase. In an effort to exert as little pressure as possible on the Pakistani rupee, it will make the payments in local currency. If made in the upcoming days, the payment will only partially satisfy Pakistan’s debt to Chinese companies. According to estimates, Pakistan must pay 12 Chinese IPPS close to $1.07 billion. Pakistan has already pledged to pay back debts owing to China’s electricity companies. China’s investors have previously refused to begin new projects or finish current ones by the dates set since the nation has missed several payment deadlines.

Under the condition of anonymity, a government insider told The Diplomat that Prime Minister Shehbaz Sharif was keen to alter this perception. He claimed that Sharif wanted the Chinese leadership to see him as the man capable of meeting Beijing’s demands. It is important to note that Sharif will travel to China later this year CPEC. China-Pakistan Already, Pakistan’s failure to finish CPEC projects has angered China. Pakistan’s Struggles Although it has pledged to pay four Chinese power producers $200 million, this is still a small portion of the debt owing to China According to a recent CPEC authority to payment, Pakistan has only built three CPEC projects in Gwadar, while “a dozen projects worth roughly USD 2 billion remain incomplete, including water supply and energy service.” The Sharif government’s decision to dissolve the CPEC Authority, a body that handled all CPEC-related issues, is a step that may aggravate Beijing even more. The Pakistan Muslim League-Nawaz (PML-N)-led administration claims that this choice will hasten the completion of CPEC-related projects. Pakistan’s relations with China are becoming more difficult as a result of the move and the current political and financial turmoil. Islamabad’s lack of financial resources is one of the causes of Pakistan’s inability to pay Chinese businesses. Moreover, the International Monetary Fund is investigating Pakistan’s energy agreements with China (IMF).

One report claims that the IMF wants Pakistan to bargain with Chinese IPPs in order to obtain better terms for the debt restructuring of CPEC power facilities. Pakistan has stated that it will “strive to minimise capacity payments, as we clear the arrears, either by renegotiating the PPAs [Power Purchase Agreements] or by lengthening the period of bank loans,” according to IMF assurances. It is crucial to remember that the IMF has long requested that Pakistan control its outflows connected to the CPEC.

For instance Pakistan’s Struggles Although it has pledged to pay four Chinese power producers $200 million, this is still a small portion of the debt owing to China , in 2016, the IMF issued a warning about the exponential growth in repayment obligations for CPEC-related projects after 2021. The fund had warned that, “over the longer run,” repayments and profit returns on Chinese investments “may reach around 0.4% of GDP each year. “If Pakistan is successful in renegotiating CPEC agreements, it is currently unknown. China would undoubtedly be unhappy if Pakistan submits new requests to discuss CPEC business while being pressured by the IMF. Additionally, the failure to pay the current dues might strain relationships even more. China can add requirements of its own to counter Pakistan’s renegotiation demands. It will be challenging for a cash-strapped Pakistan to manage its relations with China and the IMF.

The all-weather relationship is undoubtedly under a lot of strain, and as Pakistan’s financial problems worsen, it may take some time for it to heal.

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