Pakistan sees ‘encouraging’ response from China over debt reprofiling talks

Pakistan is getting a promising response from China over its request to lengthen maturities for Belt and Road Initiative loans, according to its finance minister, signaling potentially more breathing room for the nation that has been squeezed by costly past borrowing.

The South Asian nation is looking to increase the maturities for debt taken to build power plants and “create enough space” to lower electricity prices, Muhammad Aurangzeb said in an interview in Washington. Electricity prices have tripled for some people in Pakistan in the past few years and surpassed house rent for some.

“We have just started that discussion and the response is encouraging,” Aurangzeb said in an interview Tuesday on the sidelines of the annual meetings of the International Monetary Fund and World Bank. “These are early days in terms of those negotiations.

Pakistan is seeing a period of stability after securing a new $7 billion loan program from the International Monetary Fund. It has also seen partners including China roll over debt of $16 billion from a total of about $26 billion due in the current fiscal year that started in July.

The country needs to maintain discipline to increase the tax-to-GDP ratio to 13.5% from below 10% currently to make this the last time that it needs to borrow from the IMF, said Aurangzeb.

Pakistan is one of the most regular borrowers with 25 programs from the IMF. Ideally, the government is going to initiate discussions on obtaining additional financing from the IMF through its climate resiliency fund during the Pakistani delegation’s time at the meetings in Washington, he said.

To reach its goal, Pakistan will target sectors including retail and agriculture that have opposed previous attempts at taxation.

The nation’s provinces will move forward on legislation on the agriculture side by January and aim to start collection by July, said Aurangzeb.

The country has been a flagship destination for China’s Belt and Road Initiative of lending to developing countries that helped the nation end its decades-long electricity blackout issues. Now it’s seeking to extend the maturity of debt for nine power plants built by Chinese companies under the multibillion-dollar economic corridor.