At a time when the ruling Pakistan Muslim League-Nawaz (PML-N) is publically claiming accolades for the “fate changer” Chinese investment in the country’s energy, communication and infrastructure projects, the mandarins of public finances in Q Block are busy working out details of a new entity to park all the Chinese loans and maintain the fiscal deficit limit agreed with International Monetary Fund (IMF) during the next fiscal year.
A source said Finance Minister Ishaq Dar has tasked the Finance Ministry to work out details of a special purpose vehicle (SPV) that will be responsible for taking, utilising and returning all the Chinese loans. The SPV will be kept outside the federal budget.
A similar scheme was successfully tested by the Pakistan People’s Party (PPP) government and accepted by the IMF to park the massive power sector circular debt for a number of years. The final decision would be taken after gleaning the IMF mind in the pre-budget meetings during early May in Dubai, the source added.
The Chinese loans for energy and infrastructure projects have to be reflected in the Public Sector Development Programme (PSDP) for the next fiscal year. The Chinese assistance is estimated to be close to Rs 120 billion during the next fiscal year. If the government includes it in PSDP, it will overshoot the fiscal deficit target agreed with the IMF.
The procrastination of Finance Ministry has perturbed the Chinese, who have warned that the loans approved on government to government (G2G) basis should be treated as such. China has warned that if loans provided on G2G basis were passed on to some SPV, then under the Chinese law, terms of loans would have to be changed from soft term to commercial.
The source said the Finance Ministry mandarins believe that if they succeeded in convincing the IMF then they would also convince the Chinese. There is a general feeling in the official circles that the Chinese investment would bring an era of development in the country.
It is important to mention that indecision of the Finance Ministry has already put the government in trouble as during the last fiscal year, Pakistan paid a record $ 61 million in commitment charges to the donors. Such a situation arises when a government gets loan approved from the donors and is unable to utilise it due to its inefficiency but has to pay interest and other charges on the approved loan.
