Finance Minister Muhammad Aurangzeb has reported that Pakistan is receiving an “encouraging” response from China regarding its request to reprofile debt in the power sector.
In an interview with Bloomberg at the annual meetings of the International Monetary Fund (IMF) and World Bank, Aurangzeb stated, “We’ve only just begun that conversation, and the feedback has been positive,” he mentioned, adding that the negotiation process is still in its early stages.
He acknowledged Pakistan’s history of economic fluctuations, noting, “We’ve had so many programs and experienced boom and bust cycles. We have no choice but to ensure we continue with structural reforms.” The discussions could provide “potentially more breathing room” for Pakistan, as the government seeks to extend the maturity of debts taken to build power plants and create opportunities to lower electricity prices.
In July, it was reported that Aurangzeb was in talks with Chinese officials about reprofiling power sector debt, alongside implementing structural reforms suggested by the IMF. The government reached an agreement with the IMF for a 37-month loan program in July, contingent upon receiving “timely confirmation of necessary financing assurances from Pakistan’s development and bilateral partners.”
Currently, China has rolled over $16 billion of its total $26 billion debt to Pakistan for the current fiscal year, which began in July. Aurangzeb also mentioned plans to discuss obtaining additional financing from the IMF through its climate resiliency fund.
However, a Chinese embassy spokesperson in the U.S. declined to comment on whether China responded positively to Pakistan’s request for extended loan maturities but noted that China supports Pakistan in its efforts to grow its economy, improve living standards, and maintain financial stability.
Aurangzeb emphasized that the government recognizes it should not be in business and must instead foster an enabling environment for the private sector. He stated that the government aims to reduce its costs by cutting the number of ministries and eliminating 150,000 federal positions.
The country is seeking to extend the maturity of debt associated with nine power plants built by Chinese companies under the multibillion-dollar economic corridor project.
To enhance tax revenue, Aurangzeb announced plans to begin taxing the retail and agricultural sectors, which have resisted previous taxation efforts, aiming to implement this by July 2025. He noted that provincial governments are expected to advance legislation related to agriculture by January.
On monetary policy, Aurangzeb mentioned that the State Bank of Pakistan (SBP) might consider reducing the policy rate in the upcoming Monetary Policy Committee (MPC) meeting scheduled for November 4. In September, the central bank lowered the key policy rate by 200 basis points to 17.5% from 19.5%, citing improved inflation figures, which reached a 44-month low of 6.9% due to declining global commodity prices, increased domestic agricultural production, and a stable currency rate.
