U.S. concerned about debt Pakistan owes China, official says

By Gibran Naiyyar Peshimam

(Reuters) – The United States is concerned about debt owed to China by Pakistan and other countries, U.S. State Department Counselor Derek Chollet said on Thursday during a visit to Islamabad as the country dealt with an economic crisis.

Pakistan, historically a close ally of Washington, has become increasingly close to China, which has provided billions in loans and is Islamabad’s largest single creditor. Pakistan faces a crippling economic crisis, with decades-high inflation and critically low foreign exchange reserves depleted by continued debt repayment obligations.

“We have been very clear about our concerns not just here in Pakistan, but elsewhere all around the world about Chinese debt, or debt owed to China,” Chollet told journalists at the U.S. Embassy in Islamabad after he met with Pakistani officials.

China and Chinese commercial banks held about 30% of Pakistan’s total external debt of about $100 billion, according to a report by the International Monetary Fund released in September last year.

Much of that debt has come under the China-Pakistan Economic Corridor, part of Beijing’s Belt and Road Initiative.

Cholett said Washington was talking to Islamabad about the “perils” of a closer relationship with Beijing, but would not ask Pakistan to choose between the United States and China.

Relations between Islamabad and Washington had turned frosty over the war in Afghanistan, but there has been a thaw in recent months, with an increasing number of high-level visits.

Officials from China and the United States will be part of a multi-country meeting of a new sovereign debt roundtable on Friday.

G7 and multilateral lending institutions have long pushed for broad efforts to deliver debt relief to heavily indebted nations to help them avoid cuts in social services that could spur social unrest.

U.S. Treasury Secretary Janet Yellen and other G7 officials see China, now the world’s largest sovereign creditor, as a key stumbling block in debt-relief efforts.

Chollet said the U.S. was working with Pakistan to navigate through the current crisis.