Pakistan Faces Fresh Debt Blow as Chinese Power Firms Refuse Concessions

Pakistan's debt crisis has entered a fresh and more complicated phase after Chinese power producers refused to renegotiate contract terms or waive nearly PKR 170 billion in late payment surcharges owed to them, News18 reported. The impasse leaves Islamabad struggling with PKR 423 billion in unpaid dues to 18 China-Pakistan Economic Corridor power plants, bills that piled up through the 2025-26 fiscal year and have badly dented efforts to shrink the country's circular debt.

The standoff comes even as Saudi Arabia stepped in with fresh support. In late April, Riyadh agreed to a $3 billion deposit for Pakistan, on top of extending the rollover on an existing $5 billion facility, after Islamabad failed to secure a rollover from the UAE on a separate $3 billion obligation. Finance Minister Muhammad Aurangzeb said the Saudi funds would help push reserves toward $18 billion by the end of the fiscal year, a target tied to Pakistan's ongoing $7 billion IMF programme. The relief, though welcome, does little to resolve the deeper structural problem sitting inside the power sector.

Loan-Trapped Pakistan

Pakistan's total external debt and liabilities stand near $138 billion, with external public debt alone at roughly $92 billion. Nearly three quarters of that is concessional or long term financing from multilateral institutions and bilateral partners, leaving little room for manoeuvre when a single creditor digs in. The country is now hunting for up to $10 billion in low interest foreign financing, including from Saudi Arabia, specifically to retire the costlier Chinese energy debt.

Officials are simultaneously seeking cabinet approval to revive an expired PKR 1.25 trillion circular debt banking facility, hoping to swap high cost liabilities for bilateral loans carrying interest of around 1 per cent. If it works, the government estimates electricity tariffs could fall by nearly 3 cents per unit, a modest but meaningful cushion for households and industry already squeezed by years of energy inflation. Under current projections, consumers still face an estimated $30.6 billion burden over the next 13 years just to service liabilities tied to independent power producers.

China's debt trap diplomacy

The refusal by Chinese firms to soften terms on the CPEC plants sits inside a wider pattern that has drawn scrutiny for years. Pakistan has separately been trying to reprofile around $27 billion in debt and liabilities owed to China, Saudi Arabia and the UAE, a step Islamabad views as necessary to satisfy IMF conditions. Talks on stretching out repayment of Chinese energy debt alone have shown how costly flexibility can be. A five year extension under discussion would save Pakistan roughly $750 million a year in outflows, but add about $1.3 billion in total interest, pushing the eventual bill owed to Beijing to around $16.6 billion by 2040.

Critics, particularly in Washington, have long characterised this pattern as debt trap diplomacy, arguing that Chinese lenders extract long term leverage over Pakistani infrastructure and policy even as they resist writing down what is owed to them. Beijing and Islamabad both dispute that framing.