Pakistan ranks third globally in Chinese development finance with $70.3bn portfolio

A recent report from AidData, a US-based international development research lab, has revealed that Pakistan is the third-largest recipient of Chinese development finance worldwide, with a substantial portfolio of $70.3 billion. 

This financing primarily comes in the form of loans, with only 2 percent consisting of grants. The report utilized data from over 5,300 sources to draw its conclusions.

As per the report, Pakistan constitutes China’s third-largest country-level loan portfolio globally, following Russia and Venezuela, with a total of 161 loans worth $68.9 billion. Rescue lending to Pakistan from China was the highest in the world, highlighting the strong bilateral relationship between the two countries.

Pakistan’s public debt exposure to China stands at $67.2 billion, equivalent to 19.6 percent of its GDP. The report notes a shift in Chinese development finance, with a higher proportion now being allocated to rescue loans rather than developmental projects.

Furthermore, the post-2017 years have witnessed more common roll-overs of loans, often exceeding new loan commitments since 2019. Out of 127 infrastructure projects worth $38.8 billion, only three projects worth $452 million have been suspended or canceled.

The report also points out that more than half of the infrastructure project portfolio, 52 percent, has faced various Environmental, Social, and Governance (ESG) risks.

In particular, the energy sector has faced significant ESG challenges, with 51 percent of the portfolio encountering one or more of these issues. Only a quarter of these projects have strong ESG safeguards in place, while 46 percent have faced social risks such as labor violations or community protests.

The average interest rate on these loans stands at 3.72 percent, with an average maturity period of 9.84 years and a grace period of 3.74 years.

The energy sector received the most significant share of development finance between 2000 and 2021, amounting to 40 percent or $28.4 billion. General budget support and transport followed closely, receiving 30 percent and 14 percent, respectively.

Notably, Pakistan’s energy portfolio of $28.4 billion was the largest in the world, with Angola and Vietnam coming in as the second and third biggest recipients of Chinese development finance for the same period.

The report highlights that Pakistan’s energy portfolio represented 10.2 percent of China’s global energy portfolio across numerous countries.

A breakdown of Chinese development finance by administration showed that the PML-N government attracted the highest flows, amounting to $36.2 billion during its tenure from 2013 to 2017.

The PTI government received $19.6 billion, the PPP government $10.4 billion, and the Musharraf government $4.1 billion.

Under the PML-N government, the energy sector was the primary recipient of development finance, accounting for 52.8 percent, while “general budget support” remained the top destination under the PTI government, with 61.3 percent of the flows.

Since 2012, China has been Pakistan’s largest foreign development financing provider, surpassing the United States by significant margins in various years.

The report indicates that 82 percent of the projects committed untill 2021 were completed, with 13 percent remaining under implementation. Of the 47 projects worth more than $500 million, the majority were in general budget support, followed by energy and banking and financial services.