Pakistan’s Finance Minister Muhammad Aurangzeb Meets China’s Central Bank Governor Pan Gongsheng to Discuss Energy Sector Loans
Concerns are growing in Pakistan’s financial sector as talks with Chinese authorities about rescheduling energy sector loans face complications. On Friday, Finance Minister Muhammad Aurangzeb met with Pan Gongsheng, the governor of China’s central bank, to discuss financial cooperation.
Aurangzeb, who arrived in Beijing on Thursday, is seeking relief for Pakistan’s power sector debt and discussing structural reforms recommended by the International Monetary Fund (IMF). The outcome of these discussions is causing anxiety among stakeholders, who worry about potential impacts on foreign investment and exchange rate stability.
A senior banker expressed doubt about the negotiations, saying, “We believe China will not outright reject Pakistan’s request to reschedule energy sector loans, but the final outcome appears bleak.” This reflects China’s initial reluctance to address the issue, which delayed the meeting.
China has long been Pakistan’s largest foreign investor, with Hong Kong’s investments also playing a crucial role. Despite a decline in Chinese investments, they remain the largest source of foreign direct investment (FDI) for Pakistan in FY24. Combined investments from China and Hong Kong accounted for nearly half of Pakistan’s total FDI inflows, which grew by 17% to USD 1.9 billion. Of this, China contributed USD 568 million and Hong Kong USD 338 million, totaling USD 906 million.
SS Iqbal, a senior banker, noted, “Our dependency on China has increased as we negotiate to reschedule USD 15bn in energy sector loans, receive the highest FDI from China, and rely on them as our largest trade partner.” He added that China has also been instrumental in providing loans or rescheduling payments to bolster Pakistan’s reserves.
On March 23, 2018, the People’s Bank of China signed an agreement with the State Bank of Pakistan to provide a USD 2 billion loan via China’s State Administration of Foreign Exchange (SAFE) to support Pakistan’s foreign exchange reserves. This loan has been rolled over annually since 2018, with the latest extension occurring on February 29, 2024, extending it for another year.
Iqbal highlighted an additional concern, noting, “While China has supported our reserves, the State Bank stopped a USD 1.8 billion profit outflow to Chinese investors in FY24.” He questioned, “How can the Chinese sit calm and cool with this kind of treatment?”
Doubts Revealed
Finance Minister -: A Finance Minister is a government official who is responsible for managing a country’s money, including its budget, taxes, and spending.
Muhammad Aurangzeb -: Muhammad Aurangzeb is the person who is currently serving as the Finance Minister of Pakistan.
Central Bank -: A Central Bank is a national bank that provides financial and banking services for its country’s government and commercial banking system, and implements the government’s monetary policy.
Pan Gongsheng -: Pan Gongsheng is the governor of China’s central bank, which means he is the head of the bank that controls China’s money and financial policies.
Energy Sector Loans -: Energy Sector Loans are loans given to help develop and maintain energy projects like electricity, gas, and renewable energy sources.
Rescheduling Loans -: Rescheduling loans means changing the terms of the loan, like extending the time to pay it back or changing the interest rate.
Financial Stability -: Financial Stability means having a stable and secure financial system that can withstand economic shocks and continue to function well.
Foreign Investor -: A Foreign Investor is someone or a company from another country that invests money in a different country to help businesses grow.
Foreign Direct Investment -: Foreign Direct Investment (FDI) is when a person or company from one country invests in a business in another country, often by buying a part of the company or setting up new operations.
Stakeholders -: Stakeholders are people or groups who have an interest or concern in something, like a business or a project. They can be employees, customers, investors, or the community.
