Pakistan is the third largest recipient of Chinese development finance: US report

Pakistan is the third largest recipient of China’s development financing in the world, with the majority of the financial support coming in the form of loans, according to the latest data from the US-based research lab AidData.

About 98% of the $70.3 billion Chinese development funding, committed between 2000 and 2001, came in the form of loans, while only 2% was provided in the form of grants, the report said. The funding has helped the country develop much-needed infrastructure, it added.

CPEC is the largest investment

Launched in 2013, the China-Pakistan Economic Corridor (CPEC) is a major infrastructure and investment initiative within Beijing’s Belt and Road Initiative (BRI). Initially projected at over $45 billion, the investment grew to exceed $62 billion over time, with at least $25 billion invested in Pakistan.

“Out of the total Chinese development finance portfolio of $70.3 billion, committed between 2000-2021 in Pakistan, 8% was official development assistance (grants and highly concessional loans) and 89% was other official sector loans,” said the AidData.

Key Statistics

  • In 2017, Pakistan received finance commitments amounting to $14.0 billion, marking the highest year
  • The funding declined in 2018, before increasing again in 2019 and 2020 despite the pandemic.
  • The average interest rate on loans for Pakistan stands at 3.72%, with an average maturity of 9.84 years and a grace period of 3.74 years.
  • The top three sectors in Pakistan from 2000 to 2021 were energy, accounting for 40% or $28.4 billion, followed by general budget support (30%, $21.3 billion), and transportation and storage (14%, $9.7 billion).
  • In the Belt and Road Initiative (BRI) era from 2014 to 2021, the leading industries were energy at 43% ($23.29 billion), general budget support at 30% ($16.08 billion), and transportation and storage at 13% ($7.2 billion).

Debt Escalation

Over the past decade, Pakistan and China have maintained a longstanding economic partnership, offering crucial support to Pakistan during various economic downturns and crises. However, Chinese less-than-generous loans coupled with Pakistan’s mismanagement have also resulted in an escalation of Pakistan’s existing debt burden, the report said.

  • Pakistan received 161 official sector loans from China totaling $68.92 billion between 2000-2021, ranking as the world’s third-largest Chinese loan portfolio.
  • The loan portfolio includes $28.13 billion in rescue lending, comprising currency swap debts taken by the State Bank of Pakistan and deposits from SAFE and Chinese state-owned commercial banks.
  • Pakistan’s outstanding public and publicly guaranteed debt to China stands at $67.22 billion, equivalent to 19.6% of the GDP, AidData estimates.
  • AidData estimates are $21.2 billion higher than what Pakistan officially reported to the World Bank’s Debtor Reporting System.

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

Implementation of Chinese-financed projects

  • Out of 127 Chinese-financed infrastructure projects in Pakistan (valued at $38.80 billion), only three projects worth $452 million have been canceled or suspended from 2000 to 2021.
  • According to AidData estimates, around 52% of the infrastructure projects in this portfolio show environmental, social, and governance (ESG) hazards.
  • The energy sector faces the most challenges regarding ESG risks, accounting for 51% of the infrastructure projects in Pakistan.
  • Pakistan stands as the largest beneficiary of China’s energy investments in Asia and hosts the most significant proportion of the Belt and Road Initiative’s transport and storage projects globally.
  • With an energy portfolio worth $28.4 billion, Pakistan surpasses Vietnam ($21.7 billion) and Indonesia ($17.9 billion) in Asia and ranks above Angola and Vietnam globally, constituting 10.2% of China’s total energy portfolio distributed globally.

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