Economy in distress, Pakistan struggles to come out of CPEC-fuelled debt trap
Pakistan’s economy is in shambles, and the China Pakistan Economic Corridor (CPEC) is making it worse. Initially, the CPEC was touted as saviour for Pakistan but it appears to have become a liability as most of the components remain non-starter.
Lahore-based think tank Institute for Policy Reforms said that Pakistan was slipping into a debt trap, raising national security concerns. In order to bring the country’s economy back on the track and probably protect it from a possible debt-trap owing to heavy Chinese loans, now Pakistan government has begun approaching different countries including its arch-rival India.
World Bank has projected Pakistan’s economic growth in 2021-22 to remain below potential in its latest outlook. As per the bank’s annual flagship South Asia Economic Focus report, the economic growth will be average 1.3 percent. “Pakistan’s exposure to debt-related shocks will remain elevated,” reads the report.
The World Bank has projected Pakistan’s debt at 93.9 percent of its GDP, forecasting it to go up to 94.4 next year. Chinese loans to fund various projects under the CPEC are pegged at USD 80 billion, of which 90 percent will be paid for by Pakistan in the form of the national debt. Failing to which can push Pakistan into a debt trap, putting its sovereignty at risk.
Now, Pakistan has started appealing different countries to invest in the CPEC to prevent it going bankrupt. Pakistan Foreign Minister Shah Mehmood Qureshi recently invited Hungarian companies to form joint ventures with local companies.
Also, Pakistan President Dr Arif Alvi made an appeal to Kuwait Foreign Affairs MinisterDr Ahmed Naseer Al-Mohammad Al-Ahmed Al-Jaber Al-Sabah to invest. The sense of desperation could be seen through its invitation to the US for investment in the CPEC.
The US has always looked at the CPEC with suspicion, and never let a single opportunity to miss to criticise it. Allice Wells, Senior US official for Central and South Asia, has reiterated on several occasions that the CPEC project lacked transparency, and Pakistan would face debt-crisis owing to contracts being given to firms that are blacklisted by the World Bank.
Further, there have been obstacles in release of loan by Beijing and implementation of the various projects under the CPEC. The Senate Special Committee on the CPEC have picked holes in Pakistan’s Planning and Development Ministry saying it clearly lacked vision and critical thinking as an institution. Also, mismanagement and lack of strategic planning caused several lapses, charged the committee.
“The ministry did not have the capacity to coordinate and manage a huge project like CPEC. Departments were shifting responsibility to one another and that they lacked institutional collaboration,” committee convenor Sherry Rehman told Pakistan’s Parliament. China has withheld funds to the CPEC projects over reports of corruption, which however stalled construction works, admitted Pakistan Planning Ministry.
A major share of Pakistani nationalsbelieves China to be their all-weather ally, which would also help the country in its development. The CPEC is considered as a part of the same belief. However, there was a dent to this belief when a committee formed by Pakistani government found corrupt practices by Chinese power companies.
In its 278- page fact-finding report, the Committee for Power Sector Audit, Circular Debt Reservation, and Future RoadMap’ highlighted corruption of overUSD 625 million in electricity generation. While China seems not to be in mood to extend any financial loan, Pakistan had to sell a USD 2.5 billion-dollar bondafter the resumption of a $6 billion bailout program with the International Monetary Fund.
In such scenario, when its economy is in bad shape and Covid-19 and rising debt making it worse, Pakistan seems to have decided to mend ways with India. It cannot match India in economic and military capabilities now. Pakistani Army Chief Javed Qamar Bajwa clearly send a signal that economic matters should be a priority for the country when he said “We stand firmly committed to the idea of mutual respect and peaceful co-existence. It is time to extend the hand of peace in all directions.”Pakistan government is well aware how the CPEC loans are spiralling it deeper it in a debt trap.