China’s loans to Pakistan should drive economic development, lift debt payment ability

By Hu Weijia Source:Global Times Published: 2018/5/27 22:03:40

Pakistan expects to obtain $1 billion to $2 billion of fresh Chinese loans to help it avoid a balance-of-payments crisis, Reuters reported. Some observers hope China's economic assistance will help the country avoid having to go to the IMF for a bailout, but the key issue is the sustainability of China's financial help.

China will not be stingy in offering help to Pakistan to strengthen its infrastructure, but China's bank loan is a market-driven commercial decision in line with international practices. The main point is Pakistan's debt repayment ability.

China-based financial organizations stick to a principle of not imposing additional political conditions when providing loans to other countries, distinguishing them from most Western financial institutions like the IMF.

This might be one reason why Chinese loans are welcomed in Pakistan. China is likely to continue to finance new projects in the country but will also assess their debt repayment ability to avert the risk of bad debt. After all, Chinese loans to Pakistan are not a gift.

The multi-billion dollar China-Pakistan Economic Corridor (CPEC) has begun to bring tangible benefits to Pakistan's economy, which is likely to boost Pakistan's debt repayment ability. It's possible that we're entering a virtuous cycle in which Chinese loans promote the development of the CPEC, and this then improves Pakistan's debt repayment ability. However, the South Asian country may need to propel economic reforms to ensure the effectiveness of the loans and allow the local economy to benefit more from CPEC projects.

It is hoped that people will learn a lesson from the IMF's operations. In 2013, the IMF approved a loan plan for Pakistan to support its program to stabilize and rebuild the economy, but the multilateral lender failed to strictly monitor the use of the loans, and in the end they did little for Pakistan's economic development.

Now Pakistan's economy is on an upswing with the help of Chinese loans. Nadeem Javaid, who advises Prime Minister Nawaz Sharif's government and works closely on the CPEC program, was quoted by Reuters as saying last year that debt repayments and profit repatriation from CPEC projects will reach $1.5 billion to $1.9 billion in 2019, rising to $3 billion to $3.5 billion by the following year.

China is likely to strengthen economic collaboration with Pakistan under the CPEC program, in a bid to ensure the effectiveness of the loans. The key to stronger cooperation between the two countries lies in how to improve Pakistan's economic innovation capability and allow the country to develop its own capacity for long-term economic sustainability. 

China's loans to Pakistan essentially aim to drive Pakistan's economic development, and thus the loans should be offered in a way that aligns with the local economy and helps restructure the South Asian economy and boost its manufacturing and exports.

The author is a reporter with the Global Times. bizopinion@globaltimes.com.cn



Posted in: EYE ON ECONOMY

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