China seeks Pak’s additional guarantees for $6B loan

Pakistan has sought the $6 billion loan help from China for Main Line (ML-1) project against which, Beijing has sought guarantees due to the Islamabad’s weakening position…reports Hamza Ameer

Pakistan’s friendly neighbour China, which has time and again bailed it out of its financial crisis, has in a queer turn of events now demanded guarantees before sanctioning fresh $6 billion in loan to Islamabad.

Pakistan has sought the $6 billion loan help from China for Main Line (ML-1) project against which, Beijing has sought guarantees due to the Islamabad’s weakening position.

China has also proposed commercial and concessional loan against Pakistan’s desire to secure the cheapest lending.

However, a Pakistani government official stated that China did raise the additional guarantees issue during the third joint ML-1 financing committee meeting, though did not make it part of the draft of the minutes.

“The purpose of raising the additional guarantees issue was getting more clarity after Pakistan availed G-20 countries debt relief initiatives,” said the government official.

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“The draft minutes have not yet been signed by both countries,” he added.

The demand of additional guarantees gained even more clarity after the third round of financial negotiations on the $6 billion loan for the $6.8 billion ML-1 project of Pakistan Railways.

China’s demand has come in the wake of Pakistan, availing the debt relief from G-20 countries, which is only meant for the poorest nations of the world.

“The G-20 nations have also imposed condition that the poor countries would not secure expensive commercial loans, except those allowed under the IMF-WB framework,” said the government official.

Another official, who was part of the ongoing negotiations for ML-1 loan, said that the G-20 regulations and conditions for debt suspension are the reason why China now seeks additional guarantees from Paksitan.

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“The Chinese authorities have proposed that keeping in view the financial situation in Pakistan so also the conditions laid down by the G-20 regulations for debt suspension. The government of Pakistan may provide additional guarantee mechanism for the loan other than sovereign loan for the ML-1 project”, he said.

China’s demand to Pakistan has come as a surprise as fulfilling the additional guarantees would delay the early construction work of what the officials described as a “strategically important project”.

Executive Committee of National Economic Council (ECNEC) approved the project during August this year. The ML-1 project includes duality and upgrading of the 1,872 km railway track from Peshawar to Karachi and is a major milestone for the second phase of China-Pakistan Economic Corridor (CPEC).

Pakistan expectations were to get the $6 billion loan from China at only 1 per cent interest rate, along with a grace period of 10 years for repayment of the loan. However, China has proposed commercial and concessional lending, offering to finance 85 per cent of the project cost with payback period of 15 to 20 years in bi-annual repayments.

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