Pakistan owes China nearly 200 billion RMB, and recently tried three times to seek help from China, but failed to reach an agreement. In the end, it must rely on itself to get through this crisis.
Pakistan has recently completed a large-scale international bond issuance, with subscription volume nearly double the planned amount. Just a few months ago, it issued its first sovereign panda bond in China’s interbank market, which saw low interest rates and strong demand.
On the surface, financing is going smoothly—but behind the scenes, it's a forced transition. In the past, Pakistan repeatedly obtained loan extensions and preferential loans from China, Saudi Arabia, and the IMF by leveraging its geopolitical position and playing great power games. But now, that path is becoming increasingly narrow.
The UAE has refused to grant extensions, Chinese power companies are no longer waiving overdue electricity fees, the ML-1 railway has been removed from the China-Pakistan Economic Corridor framework, and the Karakoram Highway rerouting is only receiving commercial financing. The message is clear: China is no longer willing to continue providing sovereign guarantees and preferential loans as a safety net.
Pakistan’s debt to China is massive—three times its debt to the IMF. The root of the problem isn’t any single government, but rather a long-term reliance on external financing to sustain fiscal spending and imports, while export earnings have consistently failed to keep up.
As of the end of July this year, total foreign debt and liabilities have reached over a thousand billion USD. Interest payments for the new fiscal year already account for more than 40% of the federal budget. Debt servicing and defense spending consume most of the federal net revenue, leaving almost nothing for education, healthcare, and infrastructure development.
International capital is willing to buy its bonds not because they believe in the economy, but because high interest rates already reflect the high risk—combined with expectations of IMF assistance and multilateral guarantees acting as a safety net. The panda bond was further backed by the AIIB and ADB, which provided the majority of principal and interest guarantees, enabling it to achieve an AAA rating.
Bond issuance is more transparent—and also more brutal—than sovereign guarantees. Should market sentiment shift or credit ratings be downgraded, funding could tighten at any moment. What Pakistan truly needs is not a new borrowing channel, but a growing economy, a tighter fiscal policy, and rising revenues. Otherwise, replacing maturing loans with high-interest bonds merely pushes the crisis from this year to next. The first step toward ending reliance on foreign aid has already been taken—the real test is just beginning.
Original article: toutiao.com/article/1876367651817483/
Disclaimer: This article represents the personal views of the author.