Thursday, May 16, 2024

Chinese Investors Demand Pakistan Relocate Funds Amid Default Risk – N.F Times


New Delhi: Pakistan’s economic troubles continue to escalate, causing concern among global investors. Now, China, Pakistan’s closest ally, “Iron Brother”  has made a demand that has led to emergency consultations in Islamabad.

Amid fears of a complete economic meltdown leading to default, Chinese investors have asked Islamabad to relocate funds to off-shore bank accounts to service debts incurred for establishing energy plants under the China-Pakistan Economic Corridor (CPEC). Additionally, Chinese investors have insisted that Islamabad clear USD 12.5 crore in dividends owed to Chinese firms operating in Pakistan.

This demand has led to emergency meetings within the Pakistan government, with officials contemplating the appropriate response. Sources indicate that Pakistan has not yet accepted the demand and is cautious about potential reactions from the International Monetary Fund (IMF) to any new concessions to Beijing.

Pakistan’s Finance Minister, Muhammad Aurangzeb, has urged caution in accepting any Chinese demand due to sensitivities surrounding upcoming bailout program talks with the IMF. The government maintains that Islamabad has never defaulted on Chinese energy debt repayments, a point that may be used to respond to Chinese investors’ demand.

The latest Chinese demand is reportedly due to Chinese investors finding it difficult to obtain new loans due to financial troubles in Pakistan. To address banks’ concerns, investors are seeking to place funds in off-shore accounts to demonstrate their revenue streams.

Chinese investments in energy projects in Pakistan are estimated at a value of at least USD 21 billion, with the Chinese debt for energy projects standing at around USD 15 billion. China has established energy projects in Pakistan with an understanding of 75 per cent debt and 25 per cent equity, leading to annual payments of about USD 2.4 billion in debts and dividends.

However, Pakistan’s thin foreign exchange reserves, currently at USD 9 billion, limit the central bank’s capacity to allow the outflow of funding. Most of these reserves were acquired through foreign loans and purchasing of around USD 5.5 billion from the open market.

Islamabad is not ready to cater to any demand from China that may negatively impact the upcoming Pakistan visit of an IMF team. However, ignoring the Chinese demand is also something that the current government cannot afford to do.


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