In Recent Move, Pakistan Approves $3 Billion Chinese Loan and Operator-Favored Agreement
In a recent decision, Pakistan’s Economic Coordination Committee (ECC) of the cabinet has approved significant measures that will impact various economic sectors and financial arrangements within the country.
Chinese Loan for Nuclear Power Plant: One of the key decisions made by the ECC involves the approval of sovereign guarantees against a Chinese loan for the Chashma Nuclear Power Project Unit -5 (C-5). This project, a collaboration with China, is part of the larger Chashma Nuclear Power Project. China will extend a loan of 21.3 billion RMB, equivalent to approximately $3 billion, with a 20-year repayment period and an interest rate of 3%. In return for the loan, Pakistan is obligated to issue sovereign guarantees to ensure the repayment of both the principal debt and the accrued interest.
Islamabad International Airport Outsourcing: The ECC has also stamped an operator-favored State Support Agreement for the outsourcing of Islamabad International Airport through international competitive bidding. While this move aims to streamline the operations of the airport, concerns have emerged regarding the financial burden placed on the federal government due to this arrangement. Despite handing over control to private entities, the government will remain liable for certain financial obligations, including outstanding dues from Pakistan International Airlines (PIA).
Deferred Decision on Wheat Import: A crucial decision regarding the import of at least one million metric tons of wheat has been deferred for the caretaker government. The Ministry of National Food Security estimated a shortfall of 1.53 million metric tons, necessitating imports to bridge the gap against the available wheat stock of 29.8 million metric tons. However, the current high wheat prices and adequate market stocks have led the ECC to leave the decision for the interim government.
Urea Gas Supply and Subsidies: The ECC addressed the gas supply for Punjab-based fertilizer plants, extending their operating period on local gas until October 15, 2023, beyond the original deadline of August 31, 2023. Additionally, the committee discussed the import of 200,000 metric tons of urea to address an anticipated shortage in December 2023. In this context, provinces have requested subsidies from the federal government to mitigate the import costs.
Extensions and Revisions: The ECC has extended the time period for the PM Kissan Package 2022, a program designed to provide farmers with concessional access to loans. The extension allows farmers to benefit from financing schemes until December 31, 2023. Furthermore, the ECC approved revised features for the SME Asaan Finance (SAAF) Scheme, which reduces the risk coverage of banks and lowers their margins under the scheme. This decision aims to reduce the government’s financial obligations related to providing guarantees for SME loans.
These decisions highlight the dynamic nature of Pakistan’s economic policies and the government’s efforts to navigate various challenges and opportunities across multiple sectors. As these measures take effect, their impact on the country’s economic landscape will be closely monitored by both domestic and international stakeholders.