Pakistan falling into Chinese debt trap

Slowly but surely, realisation seems to be dawning on Pakistan that it will fall into a Chinese debt trap if it allows China to invest heavily on infrastructure projects in that country on highly extortionist terms.

A few months ago, Islamabad withdrew its request to include the $14-billion Diamer-Bhasha Dam in the China-Pakistan Economic Corridor (CPEC) project, citing strict monetary conditions on Beijing’s part as being against the country’s national interests. 

The fact that an energy-starved country like Pakistan has pulled out of a dam project that it has not been able to complete on its own for years is significant.

There are many other projects in the same category which Pakistan is persisting with which have put the future of Pakistan’s economy in jeopardy. The level of debt these secret deals, most of them related to the CPEC, will impose on Pakistan is shocking indeed. 

For an economy as fragile as Pakistan’s, that’s an untenable proposition. Apparently, the government in Pakistan is wary of making the details of such dealings public, for it might generate serious controversy about how it agreed upon financial terms which pose a threat to Pakistan’s sovereignty in the long run.

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The cold reality is that Islamabad’s emerging economic model is becoming too dependent on China. However, at the same time, the country doesn’t have any other viable economic plans to revive its choked economy and domestic financial base. In fact, over the last few years, Pakistan approached economic collapse on several occasions with China offering life-saving support to the country’s economy.

It is a matter of relief that India did not succumb to the CPEC temptation despite several attempts by China to suck her in.

Pakistan’s Federal Minister for Ports and Shipping, Mir Hasil Bizenjo, recently told the Senate that 91 per cent of revenues generated by the Gwadar Port as a part of the CPEC will flow out to China, with Beijing virtually controlling all projects. Moreover, there are indications that the project is not likely to produce as many jobs for local Pakistanis as was anticipated earlier.

The Chinese are also upset about the presence of a number of jihadist groups in Pakistan. Secretly, China has been pushing Pakistan to take action against Islamist groups’ rising influence in the country which can directly pose a threat to Beijing’s regional economic plans and financial investments in Pakistan.

While Beijing has long helped Islamabad’s position at the United Nations by blocking moves against a number of anti-India militant leaders, now that China is a direct stakeholder in Pakistan’s security, it is reviewing its vocal support.

During the recent BRICS Summit, China, in an unprecedented shift from its previous policy of taking up strategic dialogues with Pakistan behind closed doors, had agreed with the rest of the member states in issuing a joint statement, stating that a number of militant groups allegedly based in Pakistan remain a “regional security concern.” The groups comprised the ones that target India’s interests in the region.

As Raza Rumi, a Pakistani writer, journalist and a public policy specialist argues: “The fact that the Daimer-Bhasha dam is being constructed in a region that is a disputed territory between India and Pakistan is a factor that cannot be denied.” He adds that “China is cautious because it doesn’t want to annoy India with whom it has billions of dollars’ worth contracts.”

Sri Lanka too is a victim of Chinese debt diplomacy which traps a country desperate for money. A few months ago, the Hambantota Port was handed over to a Chinese state-owned company under a 99-year lease deal widely cited as a cautionary tale on the debt legacy of Chinese investment in Asia and the Pacific. The $1.1 billion ($1.4 bn) deal was the only option for an administration that inherited a mountain of Chinese debt on a series of infrastructure follies it had no ¬capacity to service.