AS FINANCIAL HURDLES HIT CPEC, WHAT’S IN STORE FOR PAKISTAN?
The China-Pakistan Economic Corridor (CPEC), a priority for both Pakistan and China, has hit hurdles at each phase. China has now and again assured Pakistan of its support for this infrastructure and development project but several CPEC initiatives have been delayed while others are facing fresh trouble.
Though shared interests drive CPEC, financial confusion and concerns about delays are slowly changing the narrative into a purely cost-benefit analysis for both countries – more daunting for Pakistan because of its mounting debt crisis, making it increasingly dependent on loans from China. While reports suggest that Pakistan and China are carefully assessing the debt issues related to CPEC, it would behoove Pakistan’s incoming government to learn from the Sri Lankan experience and be wary of opaque deals.
Though shared interests drive CPEC, financial confusion and concerns about delays are slowly changing the narrative into a purely cost-benefit analysis for both countries – more daunting for Pakistan because of its mounting debt crisis.
How CPEC is Financed
ods of time, which will likely further Pakistan’s accumulating debt. Recent developments suggest that the financial uncertainties of the USD $62-billion CPEC may have left major dents in both China and Pakistan’s ability to make the corridor a success story.Neither country has publicized their financial mechanisms for funding CPEC projects, leaving much room for speculation. The general belief in Pakistan is that CPEC is a gift from China, making Pakistan only a beneficiary, with no financial responsibilities to shoulder. However, the available details, though blurry, suggest that the Pakistani government is expected to share the burden of CPEC financing in the long term. Additionally, most CPEC projects are funded by Chinese concessional loans, given mainly by China EXIM Bank and China Development Bank. These loans come with interest and for certain projects, Pakistan may have to repay China over extended peri
Growing Discrepancies in Chinese Assistance
The foremost concern is the lack of transparency and accountability of CPEC projects, particularly with regard to Chinese financial assistance. Analysts worry that benefits might be skewed in China’s favor, with Pakistan making several concessions for CPEC to become reality. Concessions already made include Pakistan importing heavy machinery and equipment from China and providing tax exemptions to Chinese companies, which violate procurement rules and shuts out local manufacturing, giving China a strong grip on these projects at all levels. Chinese companies also bring labor from their country, which has affected the job prospects for Pakistani youth. In this way, Pakistan’s reliance on China is increasing, adding to its financial woes, and raises questions about its overall gains from CPEC.
Pakistan began close scrutiny of CPEC projects following the realization that in return for Chinese concessional loans, it may have to give up ownership of its strategic assets. Most recently, Pakistan withdrew its bid for the Diamer-Bhasha Dam to be included in CPEC following Chinese conditions seeking ownership of the project. Another issue being raised is the increasing cost of the projects and higher estimates given by China. For instance, Pakistan Railways’ Mainline-I project, for which China was supposed to cover 85 percent of the cost with Pakistan paying the rest, was delayed after it failed to get approval from Pakistani authorities. This was attributed to the USD $4 billion project cost for phase one, which was USD $627 million higher than Pakistan’s estimates.
Source: SAV
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