Chinese loans are major factor behind Pakistan's economic crisis, officials say

Loans and financial agreements between Islamabad and Beijing are a major factor behind Pakistan's ongoing economic crisis, say government officials and economists.

Cash-strapped Pakistan is in dire need of funds as the country's foreign exchange reserves "have fallen to the lowest level in 10 years and cover only three weeks' worth of imports", Reuters reported last Friday (February 10).

The decrease in reserves was forced by external debt repayments, mainly to China, said the State Bank of Pakistan, the country's central bank.

After 10 days of talks, a visiting International Monetary Fund (IMF) delegation departed Islamabad Friday after it could not reach a deal with Islamabad that would unlock $1.1 billion in crucial funds.

However, virtual talks between the IMF and Islamabad resumed on Monday.

Pakistan owes 30% of its foreign debt to China, which includes state-owned commercial banks, said an IMF report published in September.

"This is three times more than Pakistan's IMF debt and is greater than its borrowings from the World Bank and Asian Development Bank combined," The Print reported January 6.

Pakistan, like other countries that have made deals with China, has become a victim of China's "debt-trap diplomacy" as the China-Pakistan Economic Corridor (CPEC), a Pakistani component of China's Belt and Road Initiative, also known as One Belt One Road (OBOR), continues to burden Islamabad with mountains of debt, say economists and policy analysts.

Major debts owed to China are the major reason behind the worsening economic situation in Pakistan, said Syed Shabbar Zaidi, former chairman of the Federal Board of Revenue, Pakistan's tax collecting agency.

"One of the reasons that the IMF is reluctant to unlock funds is that the monetary body knows Pakistan will use this money to make debt repayments to Chinese power plants operating in the country," said Zaidi last week while talking to a programme in Karachi.

"Most of the upcoming external debt repayments are for China, and the IMF does not want Pakistan to borrow the United States' money and use it in debt repayment to China for its power plants in Pakistan," Zaidi said, referring to the fact that the United States is the largest financial contributor to the IMF.

The wider economic interests of Pakistan lie with the West, not with China, said Zaidi.

Zaidi also criticised the CPEC and termed it an "illusion".

In a separate interview with the Global Village Space on January 21, Zaidi put the entire investment value of CPEC at $62 billion.

Of that amount, $11 billion is government-to-government investment and $51 billion is business to business, he said.

No friend at all

Others are debunking China's claims of eternal friendship with Pakistan.

"Beijing, which claims to be an 'all-weather friend'," has made no attempt at helping Pakistan extricate itself from its dire economic situation, a Pakistani Finance Ministry official who requested anonymity told Pakistan Forward.

"Instead, it has pressured [us] continually to pay debt."

"Instead of helping Pakistan in the economic crisis, Chinese companies that are operating under the CPEC have been threatening to cease operations at power plants if payments are not made up front," the official said.

Pakistani sentiment toward China's growing influence has soured in recent years amid Islamabad's deals with Beijing for multibillion-dollar infrastructure projects.

The deals have raised concerns among local residents about Chinese influence, Chinese companies' labour practices and other issues.

Environmental studies have declared CPEC-linked power plants as a source of "major air pollutants" that will reduce life expectancy in the country.

In Gwadar, where a deepwater port project is a flagship of the BRI, frequent protests have demanded an end to the harassment of locals at security checkpoints and to illegal deep-sea fishing by local and Chinese trawlers.

Chinese investment in Balochistan without the public's consent has worsened the overall security situation in the province, fuelling concern that allied militant groups will step up violent activities in the region.