Wednesday, June 16, 2021

CPEC: A Debt Burden For Pakistan

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There is little doubt that when completed, the China Pakistan Economic Corridor (CPEC) would be a win-win deal for Beijing. Most importantly, the $62 billion project is slated to grant China easy access to the Gulf and the Indian Ocean as it connects China’s landlocked western Xinjiang province with the Gwadar port in Balochistan.

But where exactly does it leave Pakistan? That is a question that several analysts, including some domestic critics of the project in Pakistan, have been asking for some time. It is not just that the CPEC and a string of other projects related to it have been witnessing cost overruns and some have been running behind schedule. These include the mega hydel power project and the much more ambitious railway line connecting Peshawar with Karachi. The railway line was initially projected to cost $8.2 billion, then it was scaled down to $6.2 billion. That had led to some celebration for saving an estimated two billion dollars in project costs. Now, reports suggest, the actual cost may go up to nine billion dollars.

The CPEC when completed is supposed to form part of Beijing’s ambitious Belt and Road Initiative (BRI), which is estimated to cost close to a trillion dollars. The BRI is custom-designed to take care of Chinese future interests—and ambitions. But it may not necessarily do the same for its junior partners. As the Washington-based Centre for Global Development has pointed out: the eight nations—including Pakistan—who are part of the BRI were running “high risk of debt distress”.

The reasons for this rather grim scenario are not far to seek. As in the case of Sri Lanka and Maldives earlier, the two south Asian neighbours had come close to falling into a Debt Trap with China. Such experience has not been confined to South Asia alone. In the case of several countries in Africa as well, the Chinese projects have landed the host countries with huge debts that they might not have initially bargained for. The reasons for this is China’s overseas development philosophy. China does not believe in giving grants or concessional loans. It offers loans on commercial terms for projects that look quite swanky. It is another matter though that these may not always make commercial sense. A telling example is the Mattala International airport in Sri Lanka built with Chinese financing. The airport looks state of the art, but hardly has any visitors are using it.

Moreover, the Chinese bidding processes are not transparent, nor do they follow international norms. The net result is that Chinese companies end up as the principal beneficiaries. The CPEC has been no exception. Apart from having an adverse trade balance with China, Pakistan has had to turn elsewhere for cash bailouts to manage its account books. A cash strapped Pakistan has been a frequent visitor to the International Monetary Fund (IMF) for loans to be able to pay back its creditors.

By all accounts, the CPEC would end up adding to Islamabad’s debt burden to a considerable extent. The repayment of the CPEC debt itself is expected to run for another four and a half decades. If Islamabad does not seem to mind it; that may be because Pakistan sees this as a small price to pay for the support it receives from its “all weather friend” in international forums. No wonder, the Chinese companies are laughing all the way to the bank.

From India’s viewpoint, China’s growing presence in Gwadar should not be seen purely in economic terms. Nor should it be seen in isolation from Beijing’s attempts to increase its footprints elsewhere in the Indian Ocean region. Such as in Maldives, Sri Lanka and Bangladesh. These are often seen as part of China’s “string of pearls” strategy. That, in plain language, refers to Beijing’s attempts to increase its presence in the Indian Ocean in an attempt to contain Indian influence in the South Asian region. Given Pakistan’s history of uneven relations with India, it is the reason why Islamabad does not complain much about the escalating CPEC debt burden.

 

Script: M. K. Tikku, Political Commentator

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