Pakistan Adds Another $1 Billion To Chinese Debt Pile As Deal With IMF Remains Elusive

Pakistan's economy has spiralled downward in the past year as it was hit by devastating countrywide floods, political instability and food inflation that had people fighting for flour in the streets, in quick succession. The country is currently being crushed between depleting forex reserves and rising prices on one side, and another political crisis on the other.

With India's neighbour on the brink of collapse, China has stepped in with a $1 billion loan to break its fall, while it already holds $30 billion from Pakistan's foreign debt pile of $126 billion.

Adding to Chinese debt

As Pakistan is burdened by Chinese debt, the loan now will be used to refinance the $1.30 billion that was recently paid to settle a debt with China.

Pakistan has no option but to add more to its debt from China, as its agreement with the International Monetary Fund to avoid default has also been delayed repeatedly.

The Pakistani Finance Minister Ishaq Dar has failed to convince IMF to secure a $1.1 billion tranche, as the country only has two weeks left to seal the deal.

The bailout package offered by IMF to rescue Pakistan from a complete economic meltdown is set to expire on June 30.

The bottom line is that in absence of external financing amidst political instability, there seems to be no way out for Pakistan from the Chinese debt trap.