Pakistan Pursues Debt Reprofiling with China, Saudi Arabia, UAE

Pakistan Seeks Debt Reprofiling with China, Saudi Arabia, and UAE to Secure IMF Bailout

Islamabad, Jul 29 (PTI) – Pakistan has sought the re-profiling of over USD 27 billion in debt and liabilities with China, Saudi Arabia, and the UAE to secure a crucial bailout package from the International Monetary Fund (IMF), according to a media report on Monday.

IMF Bailout Agreement

Last month, the IMF announced a staff-level agreement to provide Pakistan with a USD 7 billion loan over 37 months. However, the IMF attached stringent conditions to the loan, requiring Pakistan to take prior actions before the IMF board gives final approval.

Finance Minister Muhammad Aurangzeb, after returning from Beijing, mentioned ongoing talks with China, Saudi Arabia, and the UAE for re-profiling USD 27 billion. Pakistan requested these lenders to roll over more than USD 12 billion in annual debt by three to five years to secure the IMF board’s approval, expected next month.

Energy Sector Liabilities

Islamabad also asked Beijing to convert imported coal-based projects to local coal and re-profile more than USD 15 billion in energy sector liabilities. This move aims to create fiscal space amid repayment difficulties.

Pakistan’s financial arrangement with these countries involves commercial loans and SAFE deposits that are rolled over annually. These loans form a significant part of the IMF program concerning external financing needs. Pakistan has requested an extension of the maturity period of these loans—USD 5 billion from China, USD 4 billion from Saudi Arabia, and USD 3 billion from the UAE—to at least three years, providing greater predictability under the IMF program.

International Support and Collaboration

China acknowledged Pakistan’s foreign exchange difficulties and expressed willingness to help in new business ventures and re-profiling energy sector payments. China also plans to support Pakistan’s case at the IMF board as a major stakeholder.

The process of debt and equity rescheduling has started and will now proceed to the working groups with relevant financial institutions and sponsors of Chinese projects. Pakistan has hired local Chinese consultants for this purpose. “Between now and the IMF board meeting on the 37-month bailout package, we must ensure confirmation of external financing from friendly bilateral partners,” Aurangzeb said.

Additional Steps for Debt Management

Aurangzeb clarified that the Chinese energy sector debt reprofiling does not relate to the IMF program. Other prior actions have been completed, and structural benchmarks are under implementation.

He remains in contact with the finance ministers of China, Saudi Arabia, and the UAE, seeking an extension in debt rollover for three years. They assured their support, placing Pakistan in a comfortable position regarding the external financing gap. “We are at a very good place on external financing for the next three years, including year one, year two, and year three,” Aurangzeb stated.

Managing the Trade Imbalance

Aurangzeb emphasized that Pakistan is not seeking additional financing from friendly countries. “The only incremental request is an extension in the maturity period for three years instead of yearly rollovers,” he explained.

The issue of energy sector repayments was initially raised by Prime Minister Shehbaz Sharif with Chinese President Xi Jinping during a visit to Beijing and followed up with formal letters to Prime Minister Li Keqiang. Aurangzeb, along with Power Minister Awais Leghari, held meetings with Chinese finance and energy ministers and the governor of the Chinese central bank to discuss Pakistan’s ability to pay, economic stability, and relief in energy tariffs.

They discussed converting Chinese power projects to local coal and advancing their technical, logistical, and financial parameters. Financial re-profiling discussions will also involve banks and project sponsors individually. “They have recognized this, and the process will now move forward on that basis,” Aurangzeb noted.

Reprofiling CPEC Debt

The reprofiling of CPEC debt was also discussed with the governor of the Chinese central bank. “We would need to go project by project, given the CPEC structure,” Aurangzeb added. He described the discussions as very positive, highlighting that the debt of Chinese independent power producers (IPPs) is manageable. Their legal payments are being made, but the return on equity to project sponsors needs rescheduling due to foreign exchange issues, creating fiscal space.

Aurangzeb clarified that Pakistan seeks the reprofiling of payments, not debt waivers or interest rate cuts.