US Concerned about Pakistan’s Debt to China

US State Department Counselor Derek Chollet expressed concerns about debt owed to China by Pakistan and other countries during his visit to Islamabad.

Pakistan, which has been historically close to Washington, has turned to China for support as it grapples with a severe economic crisis, marked by soaring inflation and critically low foreign exchange reserves.

China has provided billions in loans and is Pakistan’s largest single creditor, with about 30% of the country’s total external debt of around $100 billion being held by China and Chinese commercial banks.

During a news conference at the US Embassy in Islamabad, Chollet stated that the US has been very clear about its concerns not only in Pakistan, but also in other parts of the world about Chinese debt, or debt owed to China.

Pakistan to receive loan from IMF to retire debts in FY22

The US State Department Counselor further noted that Washington was in talks with Islamabad about the perils of closer relations with Beijing, but would not ask Pakistan to choose between the United States and China.

The debt owed to China has mainly been accumulated through the China-Pakistan Economic Corridor, which is part of Beijing’s Belt and Road Initiative.

However, officials from China and the United States will participate in a multi-country meeting of a new sovereign debt roundtable on Friday. US Treasury Secretary Janet Yellen and other G7 officials view China, now the world’s largest sovereign creditor, as a key stumbling block in debt-relief efforts.

The G7 and multilateral lending institutions have been pushing for broad efforts to deliver debt relief to heavily indebted nations to help them avoid cuts in social services that could spur social unrest. Pakistan, being one of these nations, has been struggling to repay its debts, with China being its biggest lender.

The US is concerned about the influence China may wield over Pakistan if the country continues to accumulate debt to China.

While relations between Islamabad and Washington had previously turned sour over the war in Afghanistan, there has been a recent thaw, with more high-level visits between the two nations.

Chollet emphasized that the US is working with Pakistan to navigate through the current crisis, but also stressed the perils of accumulating debt owed to China.

The concerns about debt owed to China by Pakistan and other nations highlights the global implications of China’s debt diplomacy, which has been criticized for fostering economic dependence and political influence.

While China’s Belt and Road Initiative has been hailed as a way to promote connectivity and development, concerns have been raised about the potential risks of over-indebtedness and sustainability of projects.

As countries continue to grapple with economic crises, debt relief efforts and debt management strategies will be key to preventing social unrest and preserving global economic stability.

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