Pakistan is taking loans at an alarming rate of approximately PKR 16 billion per day, which will rise to PKR 20 billion by the end of 2022 and PKR 35 billion by the end of 2025 if the situation remains like this. Since loans are governed by sovereign guarantees of the Pakistan government, it may have to cede its strategic assets to pay back the loans. Pakistan has already ceded two of its islands to China and given total rights to its Saindak mines at a throwaway price of US$350 million to a Chinese company.
New Delhi: In 2015, when Chinese President Xi Jinping and Pakistani Prime Minister Mian Muhammad Nawaz Sharif announced an ambitious China Pakistan Economic Corridor (CPEC) with an approximate cost of US$46 billion, they termed it to be a game changer in the history of Pakistan. Today after six years the project has completely changed the game, with Pakistan crashing its economy and becoming an undeclared colony of China. In the last six years, things have turned upside down especially since Imran Khan Niazi’s tenure as Prime Minister has proved to be disastrous where not only Pakistan’s per capita GDP has reduced from US$1482 to US$1194 but inflation is hovering in double digits all the time. The initial budget of CPEC including all contingencies was US$46 billion, which has now risen to more than US$90 billion as on date. Interestingly, out of this, China and its financial institutions have already invested/loaned more than US$60 billion in/to Pakistan while just less than 25% of the work is completed. Most of the projects are financed at landslide interest rates making debt payment the largest entity in Pakistan budget.
International experts are of the opinion that CPEC is nothing but a Chinese economic trap, leading to China’s total control on the Pakistani economy. Pakistan understands this, but it is too late for it to get out of the trap. China has got its lending covered by a special confidentiality clause so that the recipient country is not able to ask for any relief from any international agency and thus becomes China’s economic slave. We can see examples of Chinese debt trap all over the world like in Laos (China took over the entire Central Electricity Grid of Laos), Tajikistan (ceded more than 1,000 sq km of land to China for a petty loan), Sri Lanka (ceded Hambantota port and Mattala airbase), Malaysia (large scale corruption was observed when 90% of the cost for oil pipelines was paid in advance to Chinese companies while work was stuck at 12%), Cambodia (being labelled as vassal state of China for 70 years), Argentina (China being the biggest trading partner is eating away the resources in country), Ecuador (over 70% of country’s GDP is spent in paying loans and interests to China), Venezuela (economy is totally dependent on China) and several African countries. The list is long.
Pakistan is not the latest addition to this list. As per estimates, Pakistan, whose external debt has already piled up to 120% of its GDP, is expected to pay back more than US$100 billion to various Chinese financial institutions by the end of 2024 on account of just CPEC projects. Professor Jia Yu, Director of International Development Corporation at Peking University openly said at the 2018 CPEC Summit that “CPEC is not a gift”. This clearly means that Pakistan must pay back either by money or by ceding its strategic assets to China. Understanding this road to doomsday is important to analyse Chinese debt trap with respect to Pakistan.
EARLY HARVEST PROJECTS OR BLOODTHIRSTY VAMPIRES
The very first phase of CPEC was early harvest projects which comprised mainly establishing power generation plants all over Pakistan. Out of the 23 planned, 16 power projects were completed as part of CPEC till 2020, where Chinese power companies invested about PKR 55 billion, and within 4 years of their commissioning achieved profits of more than PKR 450 billion, at an average cumulative rate of more than 70% every year. Pakistan dumped its old coal-fired power plants and to benefit these Chinese power producers, Pakistan’s National Electric Power Regulation Authority (NEPRA) increased the electricity tariff by 19 times in 2020 and more than 8 times in 2021. It is pertinent to mention here that as per the agreement between the Pakistan government and Chinese companies, NEPRA is legally bound to buy 100% electricity generated by these plants. And if it does not do it, the penalties will be massive. Due to these Chinese vampires, the basic power generation cost in Pakistan as on September 2021 was PKR 26.5 per unit which resulted in increasing its circular debt by 210% to about PKR 2.5 trillion.
TRANSPORT INFRASTRUCTURE WHERE STORY IS YET TO START
As part of CPEC, massive transport infrastructure was planned with seven major projects. Today all three rail projects (ML-1, ML-2 and ML-3) and two road projects (Eastern Alignment and Western Alignment) have been put on hold due to lack of funds. Only Khunjerab-Gwadar highway had seen some implementation, however its support roads are still struggling to come out of files. Massive corruption and cost overruns made these projects a white elephant. Some of the examples include the Lahore Metro orange line, which was constructed at a cost of over US$1.8 bn (PKR 32,000 crore) for a stretch of just 27.1 km. The Delhi Metro was constructed at less than one-third of this cost (even after adjusting all the possible currency conversions and inflation). A 392 km stretch of road between Sukkur and Multan consumed US$2.9 bn, or approximately Pakistani Rupees 52,000 crore (PKR 133 crore per kilometre) and almost PKR 15,000 crore at a rate of about PKR 30 crore per kilometre were spent on just repair and the refurbishing of a 487 km road, which was a part of the main road connecting Khunjerab-Gwadar.
INVISIBLE SPECIAL ECONOMIC ZONES
Pakistan planned nine Special Economic Zones all along the CPEC which promised employment to several millions of Pakistani youths and painted a very rosy picture. Today, work has not yet started in eight out of these nine SEZs planned in Gilgit, Mohmand, Rashakai, Islamabad, Mirpur, Bostan, Dhabeji and Port Qassim. Some construction started in Faisalabad SEZ, which also got stuck due to the lack of funds. Not even a single factory has come up in these nine SEZs and it is estimated that with the current financial situation in Pakistan, no SEZ will ever materialise. It is highly possible that China may take over all the nine Special Economic Zones (SEZs), the majority of infrastructure hubs and key industrial towns in course of time as collateral to its loan, since Pakistan is in no position to pay back the debts.
THE NEVER-ENDING GWADAR PORT
Pakistan thought of making Gwadar into a Dubai or New York, but its hopes failed miserably. The road projects are slow and no railway line has been laid yet. The construction of six big container berths as well as six cargo terminals (bulk cargo, roll on/roll off, grain, LNG and two for oil) are seen only on the maps and Gwadar airport is awaiting the start of work after the recent escalation of its budget from US$22.2 bn to US$51.3 bn. Recently, the local people of Gwadar staged a month-long protest to express their concern against Chinese people eating away their livelihood.
If we try to find the beneficiaries of CPEC, we find Chinese companies, joint consortiums, Pakistani companies owned by retired generals and industries owned by Pakistani politicians all around CPEC. Every project where Chinese funding is involved is covered under strict confidentiality clauses and costs are frequently escalated, without any explanation, resulting in the project becoming commercially unviable despite heavy investments. Retired or serving Pakistani Army officials are the controlling majority of the CPEC projects and they are not accountable to anyone. Corruption, no transparency, and poor planning are the other reasons for the failure of CPEC, where a dirty syndicate of government officials, military commanders and a few selected business conglomerates are busy siphoning off the money to buy assets in Europe, America, and Middle East. As a result, key projects have not yet started, but the Pakistani government is struggling to repay its debts with interests.
Chinese companies enjoy tax holidays, free water, free electricity, security from the Pakistan Army, and priority treatment, which their competitors do not. Ironically, China has not given even a single penny as grant. The government-to-government loan is negligible and all the finances are made by financial institutions like Exim Bank, China Development Bank or ICBC (Industrial and Commercial Bank of China). All the projects are either in the form of loans (concessionary or commercial) or come with a sovereign guarantee from the Pakistan government (for example power projects) for repayment.
A very interesting aspect to this financial doomsday is that every Pakistani government comes, blames its predecessor, and fools the population in the name of Kashmir and India. They then take more loans at higher interest rates and the saga continues. Today Pakistan is taking loans at an alarming rate of approximately PKR 16 billion per day, which will rise to PKR 20 billion by the end of 2022 and PKR 35 billion by the end of 2025 if the situation remains like this.
Since loans are governed by sovereign guarantees of the Pakistan government, it may have to cede its strategic assets to pay back the loans. Pakistan has already ceded two of its islands to China and given total mining rights to its Saindak mines at a throwaway price of US$350 million to a Chinese company. A few other projects are in the process of being ceded. This is dangerous for the sovereignty of any country and especially when we have a country armed with nuclear weapons ceding its assets to another country, the situation gets critical. Let’s hope the world is listening.
Major Amit Bansal (Retd) is a former military veteran.