China becomes Pakistan's largest creditor with $29bn loans

With almost $29 billion in loans, China has become Pakistan’s largest creditor.

The nation, home to 240 million people, also ranks among the top three loan recipients from the International Monetary Fund (IMF) in 2024, according to a World Bank report.

The World Bank’s International Debt Report released on Tuesday notes that Pakistan’s high debt-to-export and debt-to-revenue ratios indicate a weakening fiscal position.

The World Bank put Pakistan’s total external debt (including IMF) at $130.85bn in 2023, accounting for 352% of its total exports and 39% of gross national income (GNI). Pakistan’s total external debt servicing amounted to 43% of total exports and 5% of GNI.

According to the report, China had the single largest share of debt to Pakistan with 22% share (about $28.786bn), followed by World Bank’s 18% share ($23.55bn) and Asian Development Bank’s (ADB) 15% share ($19.63bn).

Saudi Arabia stood out as the second largest bilateral lender to Pakistan with 7% of total debt or about $9.16bn.

Of the total external debt stock, about 45% debt ($58.88bn) belonged to the bilateral lenders and 46% (about $60.2bn) to multilaterals, while remaining 9% debt belonged to private lenders led by bondholders with 8% chunk.

The report noted that of the total $130.85bn, long-term external debt stocks stood at $110.44bn, $11.53bn IMF credit and allocations and $8.878bn in short-term external debt. Total disbursements to Pakistan amounted to $12.945bn in 2023, while total repayments touched $14bn, including interest payments of $4.33bn.

According to the report, developing countries spent a record $1.4 trillion to service their foreign debt as their interest costs climbed to a 20-year high in 2023. Interest payments surged by nearly a third to $406bn, squeezing the budgets of many countries in critical areas such as health, education, and environment.

The financial strain was fiercest for the poorest and most vulnerable countries — those eligible to borrow from the World Bank’s International Development Association (IDA), the data showed. These countries paid a record $96.2bn to service their debt in 2023.

Although repayments of principal decreased by nearly 8pc to $61.6 billion, interest costs surged to an all-time high of $34.6bn in 2023, four times the amount a decade ago. On average, interest payments of IDA countries now amount to nearly 6pc of the export earnings of IDA-eligible countries — a level that hasn’t been seen since 1999. For some countries, the payments run as high as 38pc of export earnings — Pakistan even surpassed this landmark as its interest payments stood at 43pc of exports.

The report noted that South Asia saw the biggest yearly increase in interest payments on public and publicly guaranteed (PPG) debt in 2023, rising 62% to $12.5bn. The increase was most noticeable in Bangladesh and India, whose interest payments increased by more than 90% in 2023. Pakistan made the second-largest interest payments in the region.

According to the report, low & middle-income countries’ (LMICs) tightened fiscal space and high interest rates have put many countries in weak fiscal positions because of elevated payments.

Interest payments as a share of export earnings — a measure of the repayment capacity of a country — significantly increased by 1.6 percentage points in 2023 to 5.8%, equivalent to an increase last recorded in 2005. Mozambique (38.3%), Senegal (25.9%), Pakistan (13.6%), Kenya (12.8%) and Dominica (10.3%) had the highest ratios of interest payments on total debt to export earnings, a situation that has weakened their fiscal positions, the report observed.

The World Bank said IMF repurchases for LMICs, excluding Argentina, more than doubled in 2023 to $12.2bn, with the top repurchases registered from Egypt, Ukraine and Pakistan. In terms of volume, the top five LMIC recipients of personal remittances in 2023 were India at $119.5bn, followed by Mexico ($66.2bn), the Philippines ($39.1bn), China ($29.1bn) and Pakistan ($26.6bn).