Chinese investors ask ‘iron brother’ Pakistan to relocate funds as default risk gets real

Islamabad: Pakistan’s economic woes continue to dampen its credibility among global investors as now its closest ally, friend, and ‘iron brother’ China, too, has put forward a demand, which has forced emergency consultations in Islamabad.

Amid increased fears of a complete meltdown of the Pakistani economy leading to default, Chinese investors have told Islamabad to relocate funds in off-shore bank accounts to service debts sustained for establishing energy plants under the China-Pakistan Economic Corridor (CPEC). Moreover, Chinese investors have also insisted that Islamabad should clear $125 million in dividends it owes to Chinese firms functioning in Pakistan.

The Chinese demand has forced emergency huddles in relevant quarters of the Pakistan government, who are now contemplating and consulting the kind of response that should be given.

Sources aware of the development say that Pakistan has not accepted the demand till now and is being cautious over its potential reaction.

“Islamabad is also cautious about potential reactions from the International Monetary Fund (IMF) to any new concessions to Beijing,” said the government source.

Pakistan’s Finance Minister Muhammad Aurangzeb has urged focused caution in accepting any Chinese demand.

The government maintains that Islamabad has never defaulted on Chinese energy debt repayments, a reasoning that may be used to respond to Chinese investors’ demand.

Pakistan is also expected to put forward its response during the Joint Working Group on Energy meeting in Beijing next week.  One more reason for the latest Chinese demand, sources reveal, is that Chinese investors are finding it difficult to obtain new loans due to financial troubles in Pakistan.

China has established energy projects in Pakistan with an understanding of 75 per cent debt and 25 per cent equity. Now, it has to pay annual payments of about $2.4 billion in debts and dividends. On the other hand, Pakistan’s thin foreign exchange reserves — $9 billion, currently — block the central bank’s capacity to allow outflow of funding.

Most of these reserves were acquired through foreign loans and purchasing of around $5.5 billion from the open market.

Islamabad is also not ready to cater to any demand from China that may have any negative impact on the upcoming Pakistan visit of an IMF team. However, ignoring the Chinese demand is also something that the current government cannot afford to do.  (IANS)

Also Read: Concerns over Chinese intervention in Balochistan

Also Watch: