Pakistan has recently secured a $3.3 billion loan package from Chinese banks, which includes a $2 billion syndicated loan and a $1.3 billion refinancing arrangement. This move highlights the growing economic dependence of Pakistan on China, especially as the nation grapples with low foreign exchange reserves. Following the disbursement of these funds, reserves are projected to rise to nearly $15 billion by June 2025, providing a temporary financial cushion.
China has become Pakistan’s largest bilateral lender, with outstanding loans surpassing $29 billion, primarily tied to the infrastructure projects under the China-Pakistan Economic Corridor (CPEC), an essential part of China’s Belt and Road Initiative (BRI). While these projects have significantly improved energy generation, transportation, and logistics, they have also contributed to an escalating debt burden for Pakistan. Many loans are non-concessional, with higher interest rates and obligations for fixed payments on energy projects, regardless of actual power consumption.
The recent loan deal illuminates a troubling trend in Pakistan’s economic strategy. Instead of working towards paying off debt, the government has increasingly relied on refinancing existing Chinese loans, which merely pushes off the problem without strengthening financial sustainability. This approach has limited Pakistan’s access to Western credit, leading to a reliance on Chinese loans that, while quick and less conditional, increases China’s economic influence over Pakistan and complicates its foreign policy.
Pakistan’s ongoing endeavors to diversify its financing sources have led to some support from the World Bank, which approved a decade-long, $20 billion package for structural reforms. However, the country has struggled to implement necessary reforms, weakening its credibility with lenders. This lack of progress continues to constrain external funding options and keeps Pakistan in a vulnerable state.
Without meaningful internal reforms addressing its fundamental economic challenges, Pakistan’s external funding, regardless of its immediacy, cannot yield sustainable improvements. The key lies not just in securing loans but in using them strategically to enhance institutional capacity, reduce dependency, and diversify the economy.
Moreover, excessive reliance on China can weaken Pakistan’s position in the global credit market, as single creditor dependence may negatively impact risk assessments and borrowing costs. The $3.3 billion package may offer short-term relief, but it exposes Pakistan to ongoing challenges and crises without reform commitments.
Thus, Pakistan faces an urgent need to transition from crisis management toward implementing comprehensive reforms. The journey towards economic resilience requires expanding the tax base, improving public sector efficiency, and enhancing transparency in debt management. The time to initiate these crucial changes is now, ensuring that future borrowing serves as a catalyst for growth rather than deepening dependence on a singular foreign entity.