Pakistan is the third largest recipient of funding from China

• 98% of the funds are loans, while 2% are given in grants.
• 8% was official development assistance.
• $70.3 billion pledged by China from 2000 to 2021;

KARACHI: Pakistan remains the world’s third-largest recipient of development funding from China as the Asian nation helps build the country’s infrastructure with the majority of investments being loans rather than grants.

The information was revealed in a study by AidData, a US-based research lab, which added that 98% of Chinese development finance was invested in the form of loans, while just 2% was delivered as grants over the past two decades — 2000 and 2021.

“Of the total Chinese development finance portfolio of $70.3 billion committed between 2000-2021 to Pakistan, 8% was ODA (grants and ultra-concessional loans) and 89% was other official sector loans” , AidData reported in its latest post. data.

The China-Pakistan Economic Corridor (CPEC), a global infrastructure and investment initiative with a projected investment of over $45 billion, was launched in 2013 and is considered to be the largest partnership of Beijing’s Belt and Road Initiative (BRI). It grew to over $62 billion over time and at least $25 billion was invested in Pakistan.

With financing commitments of $14.0 billion, 2017 was a record year for Pakistan. after a drop in 2018, the amount rose again in 2019 and 2020, even with the pandemic. With a duration of 9.84 years and a grace period of 3.74 years, the average interest rate on the loans is 3.72%, he added.

In Pakistan, the top three sectors from 2000 to 2021 were energy (40%, or $28.4 billion), general fiscal support (30%, or $21.3 billion), and transportation and storage ( 14%, or $9.7 billion).

The top three industries across time (BRI) (2014–2021) were transportation and storage (13%, $7.2 billion), general fiscal support (30%, $16.08 billion), and energy (43%, $23.29 billion).

Pakistan and China have a long history of economic cooperation and this year marks ten years of such ties. It has helped Pakistan in all its harsh economic downturns and crises.

But worryingly, Chinese less-than-generous loans combined with Pakistan’s mismanagement have made Pakistan’s debt burden even higher.

Dr Ammar A Malik, who is a senior researcher at AidData, said that between 2000-2021 Pakistan received 161 official loans from China worth $68.92 billion, making it the third largest Chinese loan portfolio in the world. This includes $28.13 billion in bailout loans, including currency exchange debt assumed by the State Bank of Pakistan and deposits from SAFE and Chinese state-owned commercial banks.

AidData estimates Pakistan’s outstanding public and publicly guaranteed debt to China at $67.22 billion, which is 19.6% of GDP and $21.2 billion more than Pakistan has officially reported in the Debt Reporting System of the World Bank.

“In terms of China’s debt composition, since 2018 China has moved away from infrastructure lending to emergency lending to Pakistan, ensuring that previous debts taken on by Pakistan for energy, transport and other CPEC projects can be repaid on time and with interest,” Malik said.

“Compared to the Zardari and Sharif years from 2008 to 2017, when the energy and transport sectors dominated, during the PTI government between 2018-2021, the single biggest sector was general fiscal support, which shows the axis of China’s economic relations with Pakistan. turned from heavy infrastructure lending to emergency lending to bail out Pakistan’s economy.”

According to the details of the implementation of Chinese-funded projects in Pakistan from 2000 to 2021, only three projects totaling $452 million out of 127 infrastructure projects worth $38.80 billion have been canceled or suspended so far. Estimates from AidData show that environmental, social and governance (ESG) risks were present in 52% of this portfolio of infrastructure projects.

The energy industry has seen the most difficulty in terms of ESG risks, with 51% of the portfolio dealing with one or more of these issues.

Pakistan is the largest beneficiary of China’s energy investments in Asia and holds the largest global share of the Belt and Road Initiative’s transmission and storage projects.

With an energy portfolio worth $28.4 billion, Pakistan has the largest in Asia, surpassing both Vietnam ($21.7 billion) and Indonesia ($17.9 billion). Globally, it ranks highest, above Angola ($24.7 billion) and Vietnam ($21.7 billion). It accounts for 10.2% of China’s total global energy portfolio, which is spread across many nations.

Pakistan has one of the largest transport portfolios in the world, with highways, bridges and other supporting infrastructure worth $9.69 billion.

AidData research shows that China is investing more in Pakistan than in the US.

China has surpassed the United States in external development financing more times than any other country since 2012, spending 1.6 times in 2013, 7.7 times in 2016, and 22.4 times in 2021.