Pak fails repayment, China loses interest in Neelum Jhelum project

New Delhi, Feb 6: China is the largest creditor of Pakistan and going by the IMF data, nearly 30% of Pakistan's total foreign debt is owed to China. The debt that Pakistan owes to China, when put in numbers, goes up to more than $30 billion but given the difficult situation Pakistani's economy is in, it is facing a Herculean tax in repaying. Pakistan is failing even to pay interests on the loans from China.

Interestingly, the debt from China is three times more than its IMF debt. China, over the years, gave loans to Pakistan that are greater than the loans from the World Bank and Asian Development Bank combined. Thus, China has rather over-invested in Pakistan and like any big creditor, is worried now as its client fails to pay even the interest regularly.

Keeping all the factors in mind, especially the current state of economy of Pakistan, China is unwilling to continue with power generation projects in Pakistan. The first casualty is the Neelum Jhelum Hydropower Project (NJHP) which it had started in 2018. The 969-megawatt project may not be completed if China withdraws from it.

Chinese firms reluctant due to delayed payments

As Pakistan fails to even repay the interests, several of the Chinese companies doing development projects including power generation projects are now reluctant to carry on their work there. The Neelum Jhelum project also remains stalled from July 2022. The major reason behind the stalling is blockage in its 68-km long tunnelling system.

Pakistan media reports that Chinese ambassador to Pakistan Nong Rong has already warned the country on the delayed repayments. He was quoted saying that the Chinese companies are concerned about delayed payments to independent power producers.

Not only has the rising exchange rate made the situation worse for the repayment but the National Electric Power Regulatory Authority too has been extremely unhelpful in solving the repayment issue. Pakistani currency is at an all-time low in exchange against USD which has contributed to the repayment problem to the Chinese power producers.

Although the Pakistan government is begging for loans from the IMF and other nations, given the bad shape of the Pakistani economy, no institution is willing to take risks. Pakistan is facing economic troubles from several fronts, on one side the interests on loans are piling up and it is failing to repay, on the other, neither the IMF nor US or China willing to spare a penny.