ISLAMABAD: Cash-strapped Pakistan has sought reprofiling of over $27 billion in debts and liabilities to China and two other friendly countries to secure a bailout package from the IMF, according to media reports on Monday. The Washington-based International Monetary Fund said last month it had signed a staff-level agreement with Pakistan to provide a $7 billion loan to be disbursed over 37 months.
But it comes with strict conditions attached, requiring Pakistan to take prior action before the fund’s board of directors gives final approval for the loan.
Finance Minister Muhammad Aurangzeb, who returned from Beijing, told media on Sunday that talks were on with China, Saudi Arabia and the UAE for reprofiling the $27 billion.
Aurangzeb said Pakistan has already asked three friendly bilateral lenders to extend its debt portfolio of over $12 billion per year from three to five years to secure approval at the IMF executive board meeting scheduled for next month.
This comes in addition to asking Beijing to convert imported coal-based projects to domestic coal and restructure more than $15 billion of energy sector debt to create fiscal space amid difficulties in making timely repayments.
Pakistan has special financial arrangements with these three countries in the form of commercial loans and SAFE deposits, which are rolled over from year to year and form a major part of its IMF program in terms of its external financing requirements.
Pakistan is currently requesting that the maturity periods of its $5 billion loans from China, $4 billion from Saudi Arabia and $3 billion from the UAE be extended to at least three years to increase predictability under its IMF programs.
Aurangzeb said China was aware of Pakistan’s foreign exchange crunch and, as one of the key stakeholders, was keen to play its role in supporting Pakistan’s position in the IMF’s executive board and cooperate in new ventures and reprofiling of energy sector payments.
He said the process of debt and equity rescheduling has been initiated and will now be taken up in a working group with the financial institutions concerned and Chinese project sponsors for which Pakistan has hired local Chinese consultants.
“Between now and the IMF board meeting (on the 37-month bailout package) we must ensure that we secure external funding from friendly bilateral partners,” he said.
However, he explained that China’s energy sector debt reprofiling has nothing to do with the IMF program as other prior measures have been completed and structural benchmarking has been implemented.
Aurangzeb said he was in touch with the finance ministers of China, Saudi Arabia and the UAE for a three-year extension of debt rescheduling and that they had assured assistance which would put Pakistan in a very favourable position in terms of its external financing gap.
“We believe we are in a very good position for external funding over the next three years, including years one, two and three,” he said.
He said the IMF was developing a three-year financing needs assessment, which would include the IMF’s own $7 billion extended fund. Refinancing from friendly countries would make the remaining external financing gap very manageable, he said.
In response to a question, the minister said Pakistan is not seeking additional loans from friendly countries. “The only additional thing is to extend the maturity period by three years instead of rolling it over every year,” the minister said.
Aurangzeb said the issue of repayments in the energy sector was initially raised by Chinese President Xi Jinping and Prime Minister Shehbaz Sharif during his visit to Beijing, after which a formal letter was sent to Premier Li Keqiang.
As part of this process, President Aurangzeb along with Power Minister Awais Leghari met with China’s Finance Minister, Energy Minister and Central Bank Governor to take stock of Pakistan’s solvency, economic stability and reduction in energy tariffs.
He said the two sides discussed how to proceed with converting the Chinese power project to local coal-fired power generation, as well as its technical, logistical and financial parameters.
Secondly, financial reprofiling also needs to be discussed separately with banks and project sponsors. “They will be made aware of this and the process will move forward based on that,” Aurangzeb said.
He said he had also discussed reprofiling CPEC debt with the governor of the People’s Bank of China, adding, “Given the structure of CPEC, we need to address it on a project-by-project basis.”
“From my perspective, there have been very positive discussions,” he said, adding that while the debt of Chinese independent power producers (IPPs) was manageable as statutory payments were being made, the issue was related to return on equity for project sponsors as the debt was mainly denominated in foreign currency and needed to be rescheduled to create financial space.
The minister, however, clarified that Pakistan was seeking reprofiling of payments and not a “haircut” — debt forgiveness or reduction in interest rates.
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