Digital Desk, Islamabad. A large portion of Chinese development financing under the China-Pakistan Economic Corridor (CPEC) consists of loans that, as opposed to grants, are at or close to commercial rates. Pakistani newspaper Dawn has told in a report that the US-based International Development Research Laboratory, Eddata has made this claim. If put simply, according to the report, China’s funding is not any grant or relief given to Pakistan, but it is purely an amount given at commercial rates or nearby rates.
China made a commitment of $34.4 billion to Pakistan for development between 2000 and 2017. Islamabad is the seventh largest recipient of Chinese foreign development funding with 71 projects worth $27.3 billion. It said the interest rate for an average loan with a tenure of 13.2 years (when full repayment with interest is due) and grace period of 4.3 years is 3.76 per cent.
In addition, the report claimed that Pakistan received almost half of all Chinese development finance as export buyer’s credit. It is money given to Pakistan by Chinese institutions to facilitate the purchase of equipment and goods to be procured by Chinese implementation partners. 40 percent of China’s loans to Pakistan are now given to state-owned companies, state-owned banks, special purpose vehicles, joint ventures and private sector institutions. The report claimed that the government’s records relating to these Chinese loans do not appear for the most part.
The report noted, however, that they often benefit from an explicit or implicit form of government liability protection, which blurs the distinction between private and public debt. Given that the government has issued sovereign guarantees in some cases. This means that if non-government borrowers fail to generate enough revenue to meet their financial obligations, the national exchequer will repay the loan.
According to the report, in other cases.. the government has provided a so-called guaranteed return on equity to the borrowers. These types of guarantees are effectively a form of hidden debt to China.. These financial arrangements are attractive to the government, as they are not required to appear as public debt. The report said that the economy is already in danger zone based on the public debt-to-GDP ratio of 92.8 per cent.