A recent report by AidData, a United States-based international development research lab, unveiled Pakistan as the third-largest beneficiary of Chinese development finance globally, boasting a substantial portfolio of $70.3 billion.
In the period spanning from 2000 to 2021, only a mere two percent of China’s financial portfolio allocated to Pakistan consisted of grants, with the remainder taking the form of loans, as highlighted in the comprehensive AidData report. The research claims to have collated data from over 5,300 sources to derive its findings.
The loans extended to Pakistan bore an average interest rate of 3.72 percent, coupled with an average maturity period of 9.84 years and a grace period averaging 3.74 years, as stipulated by the American research institution.
An in-depth analysis revealed that the energy sector, accounting for 40 percent or $28.4 billion, garnered the highest share of development finance between 2000 and 2021. General budget support followed closely, constituting 30 percent or $21.3 billion, while transport and storage secured a 14 percent share, amassing $9.7 billion.
Remarkably, Pakistan’s energy portfolio of $28.4 billion emerged as the most substantial worldwide, outpacing other beneficiaries like Angola with $24.7 billion and Vietnam with $21.7 billion. Notably, Pakistan’s energy portfolio represented 10.2 percent of China’s entire global energy financing, encompassing multiple countries, as suggested by the AidData report.
In terms of the breakdown of Chinese development finance among various administrations, the PML-N government during 2013-2017 succeeded in attracting the highest inflow of funds, amounting to $36.2 billion over the 21-year span. The PTI government garnered $19.6 billion, while the PPP government secured $10.4 billion, and the Musharraf regime received $4.1 billion.
During the PML-N government’s tenure, the energy sector reigned as the principal recipient of development finance, commanding a significant share of 52.8 percent. In contrast, “general budget support” held the top position, accounting for 61.3 percent of inflows under the PTI government.
An intriguing aspect of the report noted that since 2012, China has solidified its position as Pakistan’s most substantial foreign development finance provider, surpassing the United States by considerable margins. By 2021, China had outspent the United States by 22.4 times, further highlighting the profundity of their financial relationship.
The report disclosed that 82 percent of the projects initiated until 2021 had been classified as “completed,” with an additional 13 percent categorized as “under implementation.”
Out of the 47 projects exceeding the $500 million mark, the majority pertained to “general budget support” (21), followed by energy (15) and banking and financial services (six). Notably, out of the 17 projects exceeding the $1 billion benchmark, six were designated as “general budget support,” while five were associated with energy.
The annual commitment rates exhibited a consistent upward trajectory, elevating from $509 million during the Musharraf era to $2.1 billion during the PPP government. Subsequently, the Sharif/Abbasi government witnessed an average annual commitment of $7.2 billion, while the PTI government’s average annual commitments amounted to $4.9 billion, primarily driven by general budget support lending.
With a comprehensive count of 161 loans, valued at $68.9 billion, Pakistan emerged as China’s third-largest country-level loan portfolio worldwide, following Russia and Venezuela.
Furthermore, the report elucidated that China’s provision of rescue loans to Pakistan, totalling $28.13 billion, surpassed rescue lending to other nations, including Argentina, Ecuador, and Venezuela. This paradigm underscores the exceptionally close and enduring relationship between the two countries.
The data revealed that Pakistan’s public debt exposure to China currently stands at $67.2 billion, equivalent to 19.6 percent of the nation’s GDP. The report underscores that the post-2017 era witnessed a shift towards an increased allocation of rescue loans rather than developmental projects. In its heyday (2014-2017), the China-Pakistan Economic Corridor (CPEC) was marked by substantial commitments for developmental projects. However, the subsequent years have witnessed an uptick in roll-overs, which at times equaled or even surpassed new loan commitments.
Out of the 127 infrastructure projects, encompassing a total worth of $38.8 billion, only three projects valued at $452 million have been suspended or canceled thus far.
Additionally, the report underscores that more than half, precisely 52 percent, of the infrastructure project portfolio has encountered Environmental, Social, and Governance (ESG) risks, as estimated by AidData. Within this framework, the energy sector bore the brunt of ESG concerns, with 51 percent of the portfolio grappling with one or more of these challenges.
A mere 25 percent of these projects exhibited robust ESG safeguards. Conversely, 46 percent of these projects encountered social risks, such as labor violations or community protests. The environmental and governance risks were comparatively lower, standing at 16 percent and 19 percent, respectively.
As the report sheds light on the profound financial and infrastructural collaboration between Pakistan and China, it underscores the intricate dynamics of their relationship in the development finance landscape.
For more in-depth analysis and updates, stay tuned for further developments.