Islamabad mulls $3 billion loan from Beijing

ISLAMABAD:

Pakistan has set its sights on a $3 billion loan from China to stabilize its dwindling foreign exchange reserves and is also seeking an investment windfall in half a dozen sectors during Prime Minister Imran Khan’s visit to Beijing next week.

Government sources said that in addition to political engagement, the premier would also seek China’s support in finance, trade and investment.

A final meeting to set the agenda for the visit will take place on Tuesday, two days before the scheduled visit, the sources added.

The Prime Minister will leave for Beijing on February 3 and attend the inaugural session of the Winter Olympics.

A senior finance ministry official said the government is considering asking China to approve another $3 billion loan to China’s State Administration of Foreign Exchange, known as deposits. SAFE.

China has already placed about $11 billion with Pakistan in the form of commercial loans and foreign reserve support initiatives, including $4 billion in SAFE deposits.

Chinese money is part of the country’s current official foreign exchange reserves recorded at $16.1 billion.

In the last fiscal year, the country paid more than 26 billion rupees in interest charges to China just for using a $4.5 billion Chinese trade finance facility to pay down maturing debt.

Last month, Pakistan also received a $3 billion Saudi loan, which the country consumed. Foreign exchange reserves which stood at 15.9 billion dollars before the Saudi injection have already fallen to 16 billion dollars as of January 21.

The government would also seek Chinese investment in six priority sectors, highlighting the country’s competitive advantages in cheap but skilled labor, access to the world’s two richest continents and tax exemptions.

“We will commercialize the textile, footwear, pharmaceutical, furniture, agriculture, automotive and information technology sectors for Chinese investment,” said Azfar Ahsan, chairman of the Board of Investment.

The government should tell the 75 Chinese companies it has provided access to trade routes to the Middle East, Africa and the rest of the world – offering a greater incentive in the form of reduced freight costs .

“Unlike in the past when we only talked about the Pak-Sino friendship as being higher than the Himalayas and sweeter than honey, this time we will prepare in China with a structured approach,” the minister said. of Planning and Development, Asad Umar, at The Express Tribune. .

He added that with the participation of the China-Pakistan Economic Corridor Authority (CPEC), the government has selected foreign investment sectors where there is evidence of huge benefits for Chinese investors.

“Study of selected locations shows substantial benefits in transport times via CPEC.”

Read Pakistan-China relations have grown stronger over time: PM Imran

Ocean freight charges are often 2-10% of the unit cost depending on the product. Pakistan offers significantly better and lower ocean freight rates to two of the top import destinations, according to CPEC Authority officials.

If imported from Pakistan, the freight costs €4,000 per large container to EU destinations compared to €15,000 from China. Similarly, these tariffs are 6,700 euros in the case of the east coast of the United States compared to 12,500 euros for the Chinese port in the United States.

These rates were also lower than those of India, Bangladesh and Cambodia.

Cost savings on ocean freight can significantly reduce costs for trading parties and make product prices competitive.

Similarly, the Pakistani authorities estimate that its labor is half the cost of that of China. This provides a greater opportunity for the relocation of dying Chinese industries.

However, all these areas and the competitive advantages are already known to investors, but they remain reluctant to bring “big bucks” to Pakistan due to its inconsistent fiscal and energy policies.

China has decided to embark on a more sophisticated and high-tech-oriented textile and apparel industry and engage in higher value-added functions under its 2021-25 plan.

Government officials said electricity tariffs were competitive with regional peers, 9 cents per unit electricity cost compared to 7.1 cents in Indian Punjab and 7.3 cents per unit in Vietnam.

They added that there was 100% exemption from income tax for 10 years, duty-free importation of all plant, machinery and equipment and customs and other duty exemptions available for raw materials for export.

However, this month the government removed tax exemptions on the import of machinery and plant, including for export promotion zones.

However, Pakistani authorities believe that the country’s textile sector presents the most attractive opportunities for Chinese investors in the value-added segment, especially garments and garments, where the growth potential is considerable.

Investors will be able to take advantage of the “best possible tax incentives” in its special economic zones, cheap and skilled labor, easy availability of raw materials, competitive energy tariffs, low freight costs and preferential access to European markets.

Pakistan Railways also briefed the Prime Minister on the difficulties encountered in the execution of the $6.8 billion Mainline-I project, CPEC’s largest project which has already suffered a delay of more than four years.

The sources said the funding arrangements for the project have yet to be finalized. Therefore, no major breakthrough was expected on this front.

The government has shown progress on the lingering issue of withheld payments of around 230 billion rupees to Chinese power producers and has so far paid 50 billion rupees. A further 50 billion rupees are also expected to be paid next month.