Pakistan’s Finance Minister Muhammad Aurangzeb embarked on a trip to Beijing on Thursday, aiming to secure debt relief for the power sector in talks with Chinese officials. This visit coincides with Pakistan’s ongoing efforts to implement structural reforms suggested by the International Monetary Fund (IMF) as part of a $7 billion bailout package.
Aurangzeb, accompanied by Power Minister Awais Leghari, held a meeting with his Chinese counterpart, focusing on several proposals, including the restructuring of nearly $15 billion in energy sector debt.
The meeting comes at a crucial time for Pakistan, as the country grapples with its debt burden. As discussions progressed, Pakistan’s bonds slid lower, reflecting investor concerns.
Pakistan and China have a long-standing strategic partnership, and China’s financial support has been crucial for Pakistan in the past. This latest visit seeks to further solidify that partnership, with Pakistan hoping for rollovers or disbursements on loans from China to meet its external financing needs.
The IMF’s bailout for Pakistan comes with stringent conditions, including addressing the issue of high rates of power theft and distribution losses. These losses contribute significantly to the “circular debt” – public liabilities accumulated in the power sector due to subsidies and unpaid bills. Pakistan’s government is committed to reducing this debt by 100 billion Pakistani rupees ($360 million) annually through structural reforms.
On Thursday, Leghari took to X (formerly Twitter) to highlight Pakistan’s commitment to implementing tax and energy reforms, informing the Chinese Minister of Finance Lan Fo’an about these efforts.
Pakistan’s finance ministry issued a statement emphasizing Aurangzeb’s briefing on the economic reform agenda, including initiatives to strengthen tax revenue generation and implement energy and state-owned enterprise reforms. The ministry described the IMF deal as an essential facilitator for executing these reforms.
While the Chinese finance ministry did not provide a response to requests for comment, both the finance and power ministers had confirmed their intention to discuss power sector reforms during their Beijing visit in interviews with Reuters last week.
The previous IMF bailout, implemented last year, included raising power tariffs as part of the funding program. This measure significantly impacted poor and middle-class households.
China’s involvement in Pakistan’s energy sector is substantial, with over $20 billion worth of planned energy projects. This latest visit underscores the significance of the Pakistan-China relationship and the role that China plays in supporting Pakistan’s economic recovery.
