China Emerges as Pakistan’s Largest Creditor with $29 Billion Loans

China has become Pakistan’s largest creditor, holding nearly $29 billion of the country’s total external debt, according to the World Bank’s International Debt Report 2023. The report highlights Pakistan’s growing financial vulnerabilities, driven by high borrowing levels and low export capacity.

Key Findings from the Report

1. External Debt Overview:
   • Total External Debt: $130.85 billion in 2023.
   • Debt-to-Exports Ratio: 352%.
   • Debt-to-Income Ratio: 39% of Gross National Income (GNI).
   • External Debt Servicing: 43% of total exports and 5% of GNI.
2. Largest Creditors:
   • China: $28.7 billion (22% of total external debt).
   • World Bank: $23.55 billion (18%).
   • Asian Development Bank (ADB): $19.63 billion (15%).
   • Saudi Arabia: $9.16 billion (7%, making it the second-largest bilateral lender).
3. IMF Borrowing:
   Pakistan is among the top three borrowers from the International Monetary Fund (IMF) in 2023.

Implications for Pakistan’s Economy

• Debt Sustainability:
  The report signals significant strain on Pakistan’s financial position, with debt servicing consuming a large proportion of export earnings.
• Export Dependence:
  A 352% debt-to-exports ratio indicates that Pakistan’s export earnings are inadequate to meet its external debt obligations.
• Reliance on China:
  Heavy borrowing from China, primarily for infrastructure projects under the China-Pakistan Economic Corridor (CPEC), has deepened Pakistan’s dependence on Chinese loans.
• Structural Challenges:
  The figures reveal Pakistan’s limited fiscal space and highlight the need for economic reforms to enhance export performance and reduce reliance on external borrowing.

Steps Forward

To stabilize its financial position, Pakistan must:

1. Boost Export Revenue:
   Diversify export sectors, improve productivity, and establish favorable trade policies.
2. Debt Management:
   Restructure existing loans where possible and limit reliance on high-interest bilateral loans.
3. Strengthen Domestic Economy:
   Increase foreign direct investment (FDI) and develop industries that reduce reliance on imports.
4. Collaborate with Multilateral Lenders:
   Strengthen partnerships with the World Bank and ADB for low-interest, long-term loans tied to sustainable development goals.
5. Fiscal Discipline:
   Adopt policies to enhance revenue collection, reduce deficits, and curb unnecessary expenditures.

Conclusion

China’s status as Pakistan’s largest creditor underscores the deep financial ties between the two nations but also raises questions about debt sustainability. The World Bank’s findings emphasize the urgency for Pakistan to adopt a multi-pronged approach to address its fiscal challenges, ensure sustainable growth, and reduce dependency on external financing.