Pakistan China Debt Trap: Did Pakistan become a pauper because of China, know the inside story of Dragon’s debt trap – the inside story of china debt trap which is the main reason behind pakistan economic crisis
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Currency reserves will increase by 20 percent
After this loan, Pakistan’s foreign exchange reserves will increase by 20 percent. The loan received from China has become one-third of the total loan. Pakistan has been given 30 percent loan from China and it has become the biggest loan provider. In the remaining eight months of this financial year, Pakistan has to repay a total foreign debt of eight billion dollars. Within the next two years, Pakistan will have to repay the debt of $50 billion. This will be the biggest challenge before the country, which can be very difficult to overcome. This also includes the debt that will be repaid to Chinese commercial banks apart from the Chinese government.
Less risk but increased burden
According to experts, the facility of Chinese loan repayment can reduce the risk on the economic front. But along with this, debt restructuring by other countries and international institutions is also very important. These experts believe that the biggest reason for Pakistan’s economic crisis is the China Pakistan Economic Corridor (CPEC). Whatever money Pakistan has taken under this project is in the form of loan.
At the same time, loans were also taken from Chinese commercial banks to increase currency reserves. Pakistan currently has a foreign debt of around $100 billion. This includes debt from international institutions, several countries and foreign banks. The financial institutions from which Pakistan has taken loans include loans from Paris Club, IMF, World Bank, Asian Development Bank (ADB) and other financial institutions.
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Chinese debt to GDP
In 2015, external debt was 24 per cent of GDP. Whereas in the year 2022, this figure has increased to 42 percent. According to the IMF, China has given a loan of $ 23 billion so far. A loan of about seven billion dollars has been given by Chinese commercial banks. Understand that the debt of Chinese banks is also the debt of the Chinese government. Economic experts of Pakistan, these banks also run under the supervision of the government. In the last few months, the maximum debt repayment has been done to the Chinese government and banks.Pakistan Bankrupt India: Friendship with Dragon became ‘bankrupt’ pauper Pakistan, know why great news for India
How does China give loan
China gives loan to Pakistan in three ways. The first loan is on the projects of CPEC. The second loan is from Chinese commercial banks and the third loan is the deposit of China in the State Bank of Pakistan. Apart from the loans given in CPEC, the deposits kept in Chinese banks are the biggest reason for the economic crisis. Chinese debt remains the biggest challenge for Pakistan. The loans given by China and its banks were given to increase foreign exchange reserves, reduce current account deficit and provide external financial help.
highest interest rate
The biggest obstacle in repaying the Chinese debt is that the debt was taken for overseas financial need. This was taken from commercial banks. The repayment period of these loans is one and a half to two years whereas the loans mature very soon. This is the biggest problem. Out of the total debt of Pakistan, the maximum debt is from China. China loans have to be repaid in foreign currency whereas they are acquired in Pakistani rupees. Because of this also a lot of difficulties arise. Debt recovery from China also happens at the highest rate of interest. Chinese commercial banks give loans at an interest rate of 5.5 per cent to six per cent. Whereas banks of other countries charge it at an interest rate of about three per cent. At the same time, Germany, Japan and France give loans at an interest rate of less than one percent.
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