Pakistan Finance minister sees ‘Encouraging’ China debt talks as any positive response from China would provide Pakistan with much needed relief.
Pakistan’s finance minister has indicated that the country is receiving a positive response from China regarding its request to extend the maturities of loans related to the Belt and Road Initiative. This development could provide much-needed relief for Pakistan, which has been burdened by expensive past borrowings.
Pakistan is aiming to lengthen the maturities on debt incurred for power plant construction in order to create more fiscal space to reduce electricity prices, which have tripled for many citizens and have even surpassed housing rents. In an interview in Washington, Muhammad Aurangzeb noted, “We have just started that discussion and the response is encouraging,” while attending the annual meetings of the International Monetary Fund and World Bank. The former JPMorgan Chase banker also mentioned that he engaged in discussions about debt with Chinese officials during a visit in July.
Following the acquisition of a new $7 billion loan program from the IMF, Pakistan is experiencing a period of stability. The country has also seen partners like China agree to roll over $16 billion of its total $26 billion debt due in the current fiscal year, which began in July. Additionally, the government plans to explore further financing options from the IMF through its climate resiliency fund.
Having participated in 25 loan programs over the last 50 years, Pakistan must implement sustainable reforms in critical areas such as tax collection, the energy sector, and state-owned enterprises to break the cycle of debt dependency, according to the finance minister, who made this statement at an IMF forum later that day.
The finance minister emphasized the government’s recognition that it should not be in the business sector and that it needs to foster an environment conducive to private sector growth. He also noted plans to reduce government expenditures by decreasing the number of ministries and eliminating 150,000 federal positions.
To enhance tax revenues, Pakistan intends to focus on sectors such as retail and agriculture, which have historically resisted taxation efforts. The provinces aim to advance agricultural legislation by January, with plans to commence tax collection by July, as discussed by the finance chief in his Bloomberg interview.
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