ADNAN AAMIR
ISLAMABAD — The continuous rollover of debt to China is keeping Pakistan’s economy afloat while Islamabad’s debt service to Beijing is expected to hit a record this year.
Experts say that Islamabad’s economic reliance on China could jeopardize Pakistan’s self-reliance policy that has prevented Chinese security personnel from being able to protect their nationals in Pakistan.
In March, Pakistan repaid a $1 billion loan to the Industrial and Commercial Bank of China in two tranches of $500 million. Beijing will relend the loan back to Pakistan, according to Pakistani officials.
According to World Bank statistics, Pakistan has to repay $7.2 billion to China in 2025, including principal repayments and interest payments on multiple loans — the largest-ever Pakistani repayments to China. Some $5 billion reportedly needs to be paid by June.
External debt repayments usually require debtor nations to prepare sufficient provisioning in their foreign exchange reserves. But Pakistan’s reserves dropped to a six-month low of $10.6 billion — equivalent to slightly more than two months of imports — after a $1 billion repayment to China last month.
On condition of anonymity, a Pakistani government official confirmed to Nikkei Asia that China has rolled over loans worth $15 billion in the last couple of years. These include cash deposits, commercial loans and trade financing facilities.
The refinancing of debt to make up for inadequate official reserves has helped China remain Pakistan’s largest creditor. According to the World Bank’s International Debt Report released in December, Pakistan owed $29 billion to China, which represents 22% of the country’s total external debt.
But Pakistan’s economic reliance on China appears to be much more than that suggests. Experts say that Chinese loan rollovers are now crucial to Pakistan’s economic stability, and that the economy would not remain afloat without Beijing continuing to facilitate them.
“Since 2023, timely loan rollovers from China have played an instrumental role in helping Pakistan avert default,” Naafey Sardar, an assistant professor of economics at U.S.-based St. Olaf College, told Nikkei.
Muhammad Shoaib, a postdoctoral fellow at George Mason University in the U.S., describes China’s position for Pakistan’s economy more straightforwardly, saying: “Chinese loans are perhaps as important as IMF programs for keeping the economy afloat. No IMF program for Pakistan is complete without consideration of the loans Pakistan owes to China.”
Saleem Lalani, a senior finance professional based in Karachi, concurs. “Even if Pakistan undertakes the much-needed structural reforms [that IMF demands], the results will accrue in the long term [only after] stabilizing Pakistan’s foreign exchange reserves,” leaving Pakistan no choice but to rely on Chinese debt rollovers in the short term, he told Nikkei.
Other experts say the rollovers will not benefit Pakistan’s economy in the long run. Sardar argues they only offer short-term relief. “Repeated reliance on such rollovers may weaken Pakistan’s standing with other international creditors, as it raises concerns about the country’s long-term debt sustainability and repayment capacity,” he said.
Others warn that Beijing might decide to use the loans as leverage for security concessions that would be problematic for Pakistan.
Twenty Chinese nationals have been killed and 34 injured 14 attacks since 2021, according to Pakistan’s National Counter Terrorism Authority. This has put pressure on Islamabad to protect over 20,000 Chinese nationals working in the country on projects, including Chinese Belt and Road Initiative flagships.
Crime scene investigators and police officers at a crime scene after gunmen on a motorcycle opened fire on a vehicle belonging to a Chinese national in Karachi. © ReutersIn recent months, Beijing has stepped up pressure on Islamabad to allow in security personnel to protect Chinese citizens — a demand the Pakistanis have so far resisted.
“It is our commitment to ensure the security of Chinese personnel in Pakistan. The ongoing dialogues between Pakistan and China on this subject are part of that arrangement,” Shafqat Ali Khan, spokesperson of Pakistan’s Ministry of Foreign Affairs, told Nikkei.
Shoaib said continuing to reject Beijing’s security demands is a big challenge.
“Financial leverage by China, in addition to Pakistan’s failure to secure Chinese personnel and interests, can force Pakistan to accept China’s demand to allow its security personnel in,” he said.
Sardar points to the risks of giving Beijing access: “Allowing Chinese security personnel on Pakistani soil would carry significant geopolitical risks and could severely strain Pakistan’s relations with the United States and other Western partners,” he said.
The article appeared in the asia.nikkei