Global Economy

China reluctant to lend $6 bn for Pakistan infra project


China has for the first time shown reluctance to approve a $6 billion loan for an infrastructure project in Pakistan, on concerns over its growing debt. The railway sector project is under the China Pakistan Economic Corridor (), the crown jewel under Beijing‘s Belt and Road initiative.

China recently expressed concern about Pakistan’s mounting debt, including the International Monetary Fund’s requirements for the Pakistani government to avail loans, ET has learnt from informed sources. The project has been delayed by over three years against the original timeline agreed between Beijing and Islamabad.

The loan is for the Mainline-I (ML-I) railway track, which includes dualization and upgrading of the 1,872 -km railway track from Peshawar to Karachi. The construction of the ML-1 project in three phases was approved by Pakistan’s Executive Committee of National Economic Council in August last year. The actual cost of the project was $9 billion, including an equity component of the Pakistan government. It was later reduced gradually.

The Chinese authorities are wary of Pakistan’s ability to service its debt. The concerns have also been reflected in the official records, according to media reports in Pakistan. “The Chinese side have sought clarification regarding the possibility of raising further debt by Pakistan during currency of the IMF programme. The Pakistani side clarified that debt situation is being monitored and there is no restriction under the programme to raise debt for viable projects,” Planning Commission deputy chairman Jehanzeb Khan told The Express Tribune, a leading English daily in Pakistan.

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The Chinese side also expressed reservation over restrictions imposed by the G-20 nations and the IMF, which, in Beijing’s view, could undermine the ML-1 project, according to the Express Tribune. Pakistan’s public debt jumped to 87.2% of its Gross Domestic Product by the end of the previous fiscal year and the country is consuming over 60% of tax revenues in debt servicing. It was 72.5% of the GDP when the previous PML-N government’s tenure ended about three years ago.

The Pakistan government feels that the implementation of the ML-I project would bring multiple benefits to Pakistan Railways, in addition to improving the financial situation of the company. However, China is also worried over the dilapidated financial condition of Pakistan Railways that do not allow it to take on $6 billion new debt on its books, according to the Express Tribune report. With the CPEC, Beijing aims to expand its influence in Pakistan and West Asia via Gwadar Port. But amid lack of progress on several CPEC projects, signs of unease have emerged between Pakistan and its most trusted ally over the future direction and funding of mega projects.



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