Chinese banks refuse Pakistan loan over IPP payments

Chinese banks have refused to grant Pakistan a new loan until the country settles its outstanding payments with Independent Power Producers (IPPs). This decision comes as Pakistan seeks a fresh bailout program, with the IMF stipulating that IMF funds cannot be used to pay off IPPs.

The IMF has urged Pakistan to resolve the IPPs' payment issue promptly and extend the payment timeline to five years. However, IPPs have insisted that they will not engage in discussions with Pakistan until their dues are cleared.

Prime Minister Shehbaz Sharif and Finance Minister Muhammad Aurangzeb had been seeking leniency from Chinese banks for a $600 million loan. Chinese banks, on the other hand, have demanded an 8 percent fixed interest rate for the loan.

Since 2023, Pakistan has been in discussions with China for a loan. Chinese banks have stressed the importance of clearing outstanding payments with IPPs before finalizing any new agreements. Pakistan currently owes approximately Rs550 billion to Chinese power plants.

The refusal of Chinese banks to provide a loan to Pakistan highlights the critical need for the country to address its outstanding payments with IPPs. This situation underscores the importance of financial responsibility and timely payment obligations in international relations.