China refuses loan to Pakistan for Power purchase.
Bankrupt Pakistan’s dept problem seems to be escalating as it is weather-ally China has declined to restructure USD 3 billion in liabilities. Islamabad has requested Beijing to forget debt liabilities owed to China funded energy projects established under the China Pakistan Economic Corridor(CPEC).
Pakistan debt problems escalating as liabilities due to China-funded energy prot established under the China-Pakistan Economic Corridor (CPEC) surpass $31.
The debt loan, owed largely for the building of Independent Power producers(IPPs) on take-or-pay power generation contracts, is substantially more than the 19 billion in total invested in the plants, according to reports and industry analyst. Pakistan is obliged to pay $5.9 billion to the power companies for take-or-pay capacity payments alone over the next four years by 2025. These will entail more pay than at current power usage rates.
The money is owed despite the fact that many of the plants are not producing power due to over capacity and the failure of Pakistan power authorities to develop the national grid and related delivery systems to fully meet grassroots demand. The contracts and their now perceived as onerous conditionalities were made at a time Pakistan faced acute power shortages.
Farrukh Saleem, an Islamabad-political scientists, economist, financial analyst and former goverment spokesperson on economy and energy issue told that-“Circular debt” – a term he uses for the energy sector’s overall debt profile-is up from $7.2 billion in 2018 to $15.8 billion in 2021.
“The Circular debt is projected ro hit $26.3 billion by 2025. The capacity payment has also swelled from $4.4 to$5.4 billion and is going increase to $9.8 billion in the next couple of years, ” he claimed. He said the debts are now equivalent to 11% of the gross domestic product (GDP).
Report suggests that the China has refused to budge on Islamabad’s request to renegotiate the power purchase agreements. Saying bthat any debt relief would require Chinese banks to amend the terms and conditions under which the were extended. The banks, including China’s Development Bank and Export-Import Bank of China, were not prepared to revise any of the clauses of the agreement reached earlier with the government, Beijing said in response to the request to renegotiate terms.
Pakistan has already entered what some analysts see as a sovereign debt “danger zone” with total liabilities and debts of $294 billion. Representing 109% as a percentage of GDP as of 30 December 2020. The government owes about $158.9 billion to domestic creditors, of which public sector enterprises owe about $15.1 billion.
External debt owed have similarly surged to $115.7 billion, with $11.3 billion owe to the Paris Club, $33.1 billion multilateral donor, $7.4 billion to the International Monetary Fund and $12 billion in International bonds.
Economic experts predict debt-to-GDP ratio could double to 220% of GDP by the end of 2023, if debts continue to grow at the current clip-which would coincide with the end of Prime Minister Imran Khan’s debt-inflating five-yet term
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