Pakistan seeks debt rescheduling from China as CPEC dues surge

Pakistan formally requested China to reschedule its debts, with outstanding dues for China-Pakistan Economic Corridor (CPEC) power projects increasing by 44% to Rs401 billion by the end of the last fiscal year. 

These unpaid debts, in violation of the 2015 CPEC Energy Framework Agreement, are hindering further financial and commercial relations between the two countries.

As per media reports, Finance Minister Senator Muhammad Aurangzeb and Energy Minister Sardar Awais Laghari met with China’s finance minister and the President of China Export and Credit Insurance Corp (SINOSURE) to discuss the issue. 

SINOSURE had insured the loans Chinese companies took from Chinese banks to set up projects in Pakistan.

Pakistani officials requested an eight-year extension for repaying energy debt, converting US dollar-based interest payments to Chinese currency, and reducing overall interest rates for both CPEC and non-CPEC Chinese-funded projects, according to ministry officials. 

These measures aim to lower energy costs and secure International Monetary Fund (IMF) approval for a $7 billion bailout package.

However, the finance ministry did not confirm whether China agreed to extend the loans or reduce the interest rates, which are critical for easing Pakistan’s balance of payments pressure and reducing energy costs.

Power Divison documents showed that as of June 2024, the outstanding dues to Chinese power plants surged to Rs401 billion, up Rs122 billion or 44% from the previous year. 

The main reason for the surge is the Power Division’s failure to settle at least 90% of the monthly claims from these power projects.