Featured China reluctant to approve $6b ML-I loan

[TNT]

China reluctant to approve $6b ML-I loan
Express concern over Pakistan’s growing debt


Shahbaz Rana May 08, 2021

File photo

ISLAMABAD:
Expressing concern over Pakistan’s growing debt, China has shown reluctance to approve $6 billion loan for the Mainline-I (ML-I) railway track -- the single largest project under the China-Pakistan Economic Corridor -- according to the record of a meeting and senior Pakistani officials.
The construction of ML-1 project in three phases had been approved by the Executive Committee of National Economic Council (Ecnec) in its meeting held in August last year. The actual cost of the project was $9bn initially, including equity amount of the government of Pakistan. But later, it was reduced gradually to $6.8bn.
“Beijing conveyed its concerns during a meeting held on March 30 to discuss financing modalities of the project,” the officials added.
Moreover, the officials said China also termed the total project cost of $6.8 billion at the lower side, which Islamabad is now willing to increase further by 15% or $1 billion.
The sources said that in the last meeting, Chinese authorities were wary of Pakistan’s ability to service its debt. The concerns have now also been reflected in the meeting records.

“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,” Deputy Chairman Planning Commission Dr Jehanzeb Khan told The Express Tribune while responding to a question.
The Chinese sides also showed its reservations over restrictions imposed by Group 20 nations and the International Monetary Fund which, in Beijing’s view, could undermine the ML-1 project, according to discussions that take took place in the last ML-I Financing Committee meeting held on March 30th.
“The Chinese side expressed concerns about Pakistan’s debts, including IMF’s requirements for the Pakistani government to avail loans and about the impact of restrictions under the G-20 Debt Servicing Suspension Initiative (DSSI) on the financing of the ML-I project,” showed a correspondence between Pakistan and China.
Pakistan’s public debt has jumped to 87.2% of the Gross Domestic Product at the end of the last fiscal year and the country is consuming over 60% of tax revenues in debt servicing. It was 72.5% of the GDP when the PML-N tenure ended about three years ago.
Pakistan has also availed the G-20 temporary debt relief worth $3.5 billion from July 2020 through December 2021 which, according to Beijing, was a signal of weakening debt repayment capacity.
“However, Pakistani authorities tried to remove the reservations shown by their Chinese counterpart,” the officials told The Express Tribune.

The Pakistani side stated that the IMF has not imposed any restriction on loans for the ML-I project and that country’s foreign debt was largely under control and the government has the ability to repay the debts, according to the documents.
The Pakistani side held 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.
The ML-I project includes dualization and upgrading of the 1,872km railway track from Peshawar to Karachi and is a major milestone for the second phase of CPEC and its construction is facing a delay of over three years.
The government has planned to complete the ML-I project in various packages, spanning over almost 10 years and aimed at spreading the loan over a longer period due to concerns expressed by the IMF.
China also highlighted the dilapidated financial condition of Pakistan Railways that do not allow it to take $6 billion new debt on its books.
The negotiations to secure the loan have been going on for the last over one year but so far no conclusion has been reached. The project is facing delays of over three years against the original schedule agreed between the two countries.
In a meeting held on March 30, Pakistan again expected that the loan currency would be a combination of RMB and the US dollar, covering 85% of the project cost, with an interest rate comparable to the infrastructure project under CPEC and promised that the Pakistani government would provide guarantees.
The share of each currency has not been indicated in the revised term sheet. China wants to give the $6 billion loan in RMB, as it competes with global dominance of the US dollar.

“Pakistan has not yet accepted the Chinese stance of getting a mix of commercial and concessionary loans,” said the sources. Both the sides have not converged on the loan payback period. China has proposed 15 to 20-year payback period, including a five-year grace period.
Pakistan has asked for a 25-year repayment period, including a 10-year grace period.
The Chinese ambassador to Pakistan, Nong Rong, on Friday met with Minister for Planning Asad Umar and discussed matters related to bilateral relations and projects under the CPEC and the upcoming Joint Cooperation Committee meeting, according to a Planning Ministry handout.
But the handout was silent on the the 10th JCC meeting date, which Pakistan has been trying to hold since October last year.
The sources said that Asad Umar pointed that a deal on ML-I was important to showcase the JCC as a successful event. The sources added China was reluctant to hold the JCC until it is assured that CPEC is fully back on track.
Both the sides have now agreed that a joint roadmap to push forward the ML-I project implementation that will entail confirming financial terms, launching bidding process and concluding the commercial contract, will be finalised.
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Amazing Chinese strategy. First put Pakistan in debt trap under CPEC and then stop further loans because Pakistan can't pay previous loans

@Horus @waz @beijingwalker @Beast @ziaulislam @Patriot forever @Indus Pakistan @Del @Dual Wielder @Joe Shearer @jamahir @Verve @koolio @Mav3rick @Muhammad Omar

If the news is true then ur assertion is wrong. Infact it shows china cares about Pakistan and hence doesnt want Pakistan to take out another loan that it cannot pay back.
China will never want Pakistan to be debt trapped (though Pakistan itself is trying to). The reason is that CPEC is the jewel of OBOR and if it fails or allegations of debt trap appear then it will jeopardize the whole OBOR concept. China sincerely wants CPEC to succeed and generate income for Pakistan and uplift its economy, only then other countries will be motivated to join.

 

[Indus Pakistan]

My Friends here:
I think my attitude towards Pakistan is well known. I always support Pakistan, under any condition.

The CPEC initially was created under Nawaz Sharif administration, when Pakistan is under electricity shortage.

The first several projects were directly targeting electricity shortage, many power plants installed.

Road, railway are not major investment, Power stations are.

The traffic volume across Karakorum Mountains between Pakistan and China is very low, very low.

Although it was branded China-Pakistan Economic Corridor, but it's mainly for economy and infrastructure within Pakistan territory.

The trade volume between Pakistan and China are through Karachi SEA PORT, not by land.

So it's Pakistan decision to build railway or not. While Pakistan can make loan from anywhere as long as interest benefit Pakistan.

Recently some more Hydropower plants were built, hopefully this can decrease fuel consumption and import. There are some old power stations in Pakistan which consume OIL and Natural Gas, which is much more expensive than Hydropower plants.

Pakistan does NOT have OIL and Natural Gas, it will cost Pakistan an arm and leg, as well as Foreign Exchange. Hydropower plants will benefit Pakistan a lot, I just don't understand why those were NOT built decades ago.

I really appeciate your imput. I know East Asians know what the problem is in Pakistan. You guys also know the winning formula as you have practiced and proven it. I do however find East Asian's are very hesitant or shy in telling the Pakistani's some home truths. Perhaps this is cultutal thing. Like you know what wrong yopur friend is doing. You know they are running in the wrong direction but don't want to say it lest they be seen disprespecting.

But trust me a good friend should say it. Whether they take your advice or not is secondary. At least you were honest to yourself. Pakistani's have to ask themselves why is it that Pakistan's alliance with USA failed them. Wa it the evil Americans? If so how come South Korea, Taiwan, Singapore, Turkey used American alliance to grow and succeed?

Why is it now Pakistan's great alliance with China is going sour?

Yes. Just one of the many SEZs being setup across the country with ease of business, transparency, tax and duty breaks and superb infrastructure:

This is a good example but the problem is for a country of over 200 million people there should be 30 examples of this. This success is a small blip in a vast country like Pakistan. Why has Karachi not got 10 of these? Why does Lahore not have 5 of these. Why does Islamabad not have 2 have these etc etc.


@Norwegian I would appreciate it if you did not peddle this "debt tap" conspiracy. It's just lot horseshite peddled by anti Chinese Western media and amounts to propaganda.

 

[Bilal.]

I really appeciate your imput. I know East Asians know what the problem is in Pakistan. You guys also know the winning formula as you have practiced and proven it. I do however find East Asian's are very hesitant or shy in telling the Pakistani's some home truths. Perhaps this is cultutal thing. Like you know what wrong yopur friend is doing. You know they are running in the wrong direction but don't want to say it lest they be seen disprespecting.

But trust me a good friend should say it. Whether they take your advice or not is secondary. At least you were honest to yourself. Pakistani's have to ask themselves why is it that Pakistan's alliance with USA failed them. Wa it the evil Americans? If so how come South Korea, Taiwan, Singapore, Turkey used American alliance to grow and succeed?

Why is it now Pakistan's great alliance with China is going sour?

This is a good example but the problem is for a country of over 200 million people there should be 30 examples of this. This success is a small blip in a vast country like Pakistan. Why has Karachi not got 10 of these? Why does Lahore not have 5 of these. Why does Islamabad not have 2 have these etc etc.


@Norwegian I would appreciate it if you did not peddle this "debt tap" conspiracy. It's just lot horseshite peddled by anti Chinese Western media and amounts to propaganda.

This is just one example. As you can see in the beginning of the there are 19 of these in different these at different stages of implementation and more will be added. Each of these are starting at 1-3 thousand acre. The ones that are at the stage of offering land to investor have already been over subscribed and are being expanded by thousands of acres.

It is going to change the industrial landscape of Pakistan within this decade. Not to mention work on about multiple STZs (special technology zones) have have also been started.

 

[Indus Pakistan]

@vi-va The tragedy Pakistan is simple. I think you know it. But I will put it simply. China, Veitnam etc are success stories. The winning formula is there in front of us. In fact China has applied that in my lifetime. I was in school in 1970s and our geography teacher tought us China as a dirt poor begger. Less than 40 years later and in my middle age China has become a giant. A global economic giant. So the formula is there in front of Pakistan.

But Pakistani's as a people do not look at the Chinese formula and culture to learn or kill me adopt. Nope. Instead they look to Saudia Arabia, UAE as inspirations. Pakistan needs to bring Chinese culture home anb not Arab culture. This is the home truth. I better get out before I get lynched.

As long as that continues Pakistan will not succeed. Don't forget we don't have oil.

 

[Norwegian]

Goal of debt should be to that growth should outpace it..in pakistan this doesnt happen

There is nothing wrong in debt if you can pay it back. Simple. If a person cannot take debt beyond means, why did Pakistan take so much debt?

 

[El Sidd]

The project's viability is not the problem here. There seems to be polity involved regarding the geographics of the said project.

It can do itself a favor by being on the background of things.

If the news is true then ur assertion is wrong. Infact it shows china cares about Pakistan and hence doesnt want Pakistan to take out another loan that it cannot pay back.
China will never want Pakistan to be debt trapped (though Pakistan itself is trying to). The reason is that CPEC is the jewel of OBOR and if it fails or allegations of debt trap appear then it will jeopardize the whole OBOR concept. China sincerely wants CPEC to succeed and generate income for Pakistan and uplift its economy, only then other countries will be motivated to join.

It's ill advised for Pakistan to raise the stakes this early in the decade.

Whose debt trapping or honeywashing whom is a question left for time.

 

[Basel]

Then Pakistan must look at alternative strategy for which the investment can come from China or even from Russia.

1. Why is this long rail line necessary ? To transfer cargo or passengers ? If the second then is it necessary for the many people to really travel to justify having new lines ? Also, maybe the present line can stay but the trains themselves can be made more comfortable and modernized.

2. Can't PIA and feeder bus services handle the passengers for Peshawar and Karachi ?

Maybe these two things will require a more optimized investment.

The problem is current line very old and can not support fast movement like modern trains. and new capability is needed for moving faster and more people and cargo then before.

 

[vi-va]

@vi-va The tragedy Pakistan is simple. I think you know it. But I will put it simply. China, Veitnam etc are success stories. The winning formula is there in front of us. In fact China has applied that in my lifetime. I was in school in 1970s and our geography teacher tought us China as a dirt poor begger. Less than 40 years later and in my middle age China has become a giant. A global economic giant. So the formula is there in front of Pakistan.

But Pakistani's as a people do not look at the Chinese formula and culture to learn or kill me adopt. Nope. Instead they look to Saudia Arabia, UAE as inspirations. Pakistan needs to bring Chinese culture home anb not Arab culture. This is the home truth. I better get out before I get lynched.

As long as that continues Pakistan will not succeed. Don't forget we don't have oil.

My first 2 posts when joining PDF
Pakistan industrialization, foreign policy and political system

Pakistan industrialization, foreign policy and political system

This is my first post here, my 2 cents for my Pakistan friends: Due to political system, culture and history difference between Pakistan and China, my experience may not apply to Pakistan's situation. Long story, China's history: 1, In China's founder chairman Mao's era, China got nuclear...

defence.pk

Stable gov and huge saving are the key for rapid economy growth

Stable gov and huge saving are the key for rapid economy growth

Without stable leadership(a strong gov), long-term planning is almost impossible. In western style democracy, short term election dominate domestic policy, which tends to spending the current money instead of saving and long-term investment. In the opposite, China political system push economy...

defence.pk

 

[Norwegian]

No offense.
But I think you misunderstood CPEC.

The traffic between China/Central Asian States and Pakistan is very minimal.

Literally very low cargo volume between China and Pakistan across Karakorum Mountains. Very low.

I hope you are patriot, just misled. Otherwise please provide DATA to back your Statement.

@waz, please help to make sure our discussions are based on facts. Statement should be backed by DATA.

Thank you.

I misunderstood Cpec? You think Pakistan can pay back 60 billion USD Chinese "investments" from money it doesn't have? What's Chinese rationale behind Cpec if not connecting Western China, Central Asia with deep-sea port at Gawadar, Pakistan?

 

[Norwegian]

So here is a question to ponder upon.

If China is going to use CPEC to bypass her trade away from the choke points of 'South China Sea ' & 'Strait of Malacca' then why Pakistan has to bear all the financeial burden (loans) of this project. Why doesn't China bears at least half of these loans.

Chineese compnaies running power generation units and setting up factories in economic zones in Pakistan are going to generate profit for China after all. So why Pakistan is solely bearing all the loans to ficilitate profit generation for Chinese companies?

Because Chinese investers are loan sharks. Get this into your head.

 

[Bilal.]

I misunderstood Cpec? You think Pakistan can pay back 60 billion USD Chinese "investments" from money it doesn't have? What's Chinese rationale behind Cpec if not connecting Western China, Central Asia with deep-sea port at Gawadar, Pakistan?

Yes Pakistan can pay it back. It’s a chicken and egg problem. You will not have industrialization and growth unless your infrastructure bottlenecks are not removed.

That’s exactly what is happening. Past few years these bottlenecks have been addressed and now we are loving towards SEZs which will usher in economic and export growth. Which in turn will allow us to easily pay off the debt. As long as in the future we don’t waste it on orange lines.

we can’t sit and do nothing and doing something will require cash injections.

 

[Norwegian]

I have no idea which fool concluded that.

You know that fool

CPEC a gift from China to Pakistan: PM Nawaz | The Express Tribune

China waited for PML-N rule before making CPEC investment, claims PM Nawaz Sharif

tribune.com.pk

Who told you China intended to "bypass" her trade away from the choke points? Do you know the cost of land transport compared to sea? It was never for that. I have no idea which fool concluded that.

Again what's the rationale behind Cpec then if neither China nor Pakistan is benefiting from it? Chinese are worried Pakistan won't be able to payback its "investments" in Cpec and Pakistanis are worried about debt trap and default. Wasn't it better not get into this mess to begin with?

Hydropower plants will benefit Pakistan a lot, I just don't understand why those were NOT built decades ago.

Because hydropower plants takes a decade to build that do not transform into votes in next general elections held every 5 years. Democracy is a curse to Pakistan, eating it from the inside for decades.

 

[vi-va]

I misunderstood Cpec? You think Pakistan can pay back 60 billion USD Chinese "investments" from money it doesn't have? What's Chinese rationale behind Cpec if not connecting Western China, Central Asia with deep-sea port at Gawadar, Pakistan?

I never say China doesn't want to connect Pakistan by road.
Actually Karakoram Highway was built from 1959 to 1979. Took 20 damn years to build, a lot of Pakistanis and Chinese sacrificed. It was built because of Pakistan and China security needs, not economy.

CPEC in the first place was for economy, security is another important factor.

Simple fact is, the money is distributed into Power and Road(railway as well) , most money was spent on power.

The railway within Pakistan is mainly for cargo/passengers within Pakistan. Because there is literally very low volume of land traffic between Pakistan and China.

So, where is your logic? Pakistan build railway for Chinese passenger? or Chinese cargo? No data backing your statement.

99% cargo between China and Pakistan is through Karachi SEA PORT, not Gwadar, not Karakoram Highway at all.

Cargo by Karakoram Highway is very expensive, no one can afford that. That's your misunderstanding of CPEC.

The corridor name itself is misleading somehow.

 

[Norwegian]

To sum up Pakistani economy. Migrate aboard. Send wages home. Then use those remittances to buy western and Far Eastern consumer products like cars, planes and other toys.

 

[doorstar]

I hope you are patriot,

no ahmadi exile is ever loyal to Pakistan (you can't really blame them after what bhutto and moolahs did to their mazhab)

by the way express tribune is part of Lakson Group whose owner Iqbal Ali Lakhani son of a former (crooked) Senator Sultan Ali Lakhani is originally an indian maratha.

now he is more American than the Americans ( and owns McDonald's in Pakistan).

oh nearly forgot to mention tribune partnership with a couple of American Papers

Partnered with The International New York Times – the global edition of The New York Times – the paper caters to the modern face of Pakistan.