As highlighted in a Financial Times piece of April 25, Pakistan has taken between $1.2 and $1.3 billion in non-project loans from Chinese financial institutions since June 2016 to shore up the country’s foreign currency reserves and service other debts.
The loans have come from the Industrial and Commercial Bank of China (ICBC) and Bank of China (BoC), two of China’s largest commercial institutions, and its largest development bank, China Development Bank (CDB). Of primary concern is what some see as a new trend in Islamabad of servicing existing sovereign debt with commercial loans in the shadow of another balance of payments crisis.
Pakistan dealt with a similar crisis in 2013 with a $6.6 billion loan from the International Monetary Fund (IMF) and received praise from the bank’s director, Christine Lagarde, for repaying that debt on schedule. Of late, however, Pakistan appears to be avoiding the IMF in the face of another crisis, possibly to avoid criticism in advance of the 2018 election.
Moreover, fueled by strategic considerations rooted in the bilateral China-Pakistan relationship, including its military and economic dimensions now wrapped up in the China-Pakistan Economic Corridor (CPEC), there is concern that Chinese loans are not reflective of regular financial considerations. According to the Financial Times, one Pakistani official observed, “China keeps a very close eye on our economic trends and they’re happy to come to our help wherever needed.”