Photo taken on March 29, 2020 shows Pakistan air force members prepare to download the medical supplies provided by the Chinese government at Noor Khan Air Base near Islamabad, Pakistan. (Xinhua/Liu Tian)

 China fully understands the dire financial situation Pakistan is experiencing and is willing to offer substantial help, Chinese experts said on Thursday. 

On Wednesday, Chinese Foreign Minister Wang Yi said that China will support Pakistani Prime Minister Imran Khan's global initiative for debt relief. 

The comment came during a phone conversation with Pakistani Foreign Minister Shah Mahmood Qureshi on Wednesday, according to The Express Tribune.

The Pakistani prime minister recently launched the initiative as an appeal to the world community to provide debt relief to developing countries.

China will continue to provide all possible support to Pakistan in line with its needs to help it overcome the COVID-19 epidemic at an early date, Wang said.

The Chinese government has provided multiple shipments of material assistance, dispatched medical experts to Pakistan, and convened video conferences to share China's experience in prevention, control and treatment of COVID-19. Pakistan reported 6,505 confirmed cases of the coronavirus infection on Thursday.

On Wednesday during the G20 meeting, Pakistan was included in the group of countries eligible for debt relief, according to the English-language newspaper Dawn published in Pakistan.

The suspension period for debt will run from May 1 to December 1 this year. All debt service payments falling due in this period will be packaged into new loans on which payments will not start until June 2022, it said.

An IMF report showed that Pakistan will have $12.731 billion of external debt repayment obligations in fiscal year 2021 (October 2020-September 2021) that could be subject to treatment under the debt relief plan.

Zhou Rong, a senior research fellow at the Chongyang Institute for Financial Studies at Renmin University of China, said on top of the G20 commitment, China could help Pakistan ease its debt woes by reducing or forgiving some of its government-level debt. 

"Rates on some of the preferential loans could be reduced to zero or near-zero, while zero-interest rate loans could be transformed into grants," Zhou said. This process will involve both sides sitting down and working out terms in a case-by-case fashion, according to Zhou. 

However, such flexible arrangements at the state level should not be mixed up with corporate sector loans, the majority of which are associated with China-Pakistan Economic Corridor (CPEC) projects which reportedly has a total price tag of $46 billion. The CPEC is a major pilot project under the China-proposed Belt and Road Initiative.

Wang Linggui, a research fellow at the National Institute of International Strategy under the Chinese Academy of Social Sciences, told the Global Times on Thursday that it is important to clarify the boundary between government grants and commercial projects.

"The flagship CPEC project has been in operation continuously since last year, and it drives local economic development as well as employment," said Wang.

The CPEC is making steady progress, and its scope will be further enhanced in the second phase, the Xinhua News Agency reported, citing the chairman of the CPEC Authority in Pakistan. Many projects focusing on infrastructure and the energy sector in the first phase of the CPEC have been completed and are operational, and work on the second phase is proceeding.

"The CPEC will be a cash cow for Pakistan in the years to come, helping it to pay off loans with the income that's generated. Anything that dents the enthusiasm of private companies working on the CPEC should be avoided," Zhou said.  

Government debt between China and Pakistan will reach about $500 million by 2025, according to Zhou's estimates.

The action of the G20, which freezes debt payments instead of directly canceling them, suits both debtors and creditors, Zhou said.

Pakistan has the world's fifth-largest population, but it has been struggling with debt issues in recent years. Media reports said out that the South Asian country faces total external debt of around $105 billion, with $28 billion maturing in the next three years. 

Zhou said the Pakistan economy could contract 1.5 percent in 2020, something the country could not afford.