China’s economic and political footprint has expanded rapidly over the world in recent past decades. More and more counties have been engaging in Chinese projects in the region and beyond in multiple ways. The monetary and infrastructure investment has engaged many countries with robust economic and civil institutions, and others with weak economic structures, the implications have statistically proved passive for many recipient counties. The economic activism is more visible in two strategic regions, south Asia and Africa where the outreach of Chinese economic and political profile has grown remarkably in recent years. However, countries in this region lack the institutional depth to evaluate the domestic implications of Chinese activism and policy recommendations.
Sri Lanka is currently in throes of a vicious economic meltdown and it is essential to evaluate and compare the economic situation in Sri Lanka and Pakistan in the context of global economic crises that have ravaged developing nations. Pakistan has a large amount of debt, high inflation, a spike in unemployment and a lot of other macroeconomic problems which shows that the country’s economy is like a ticking time bomb. The factors that contributed to Sri Lanka’s economic crisis have also had a significant impact on Pakistan, whose economy faces similar challenges. The import dependence of essential commodities, limited foreign exchange sources, restrictions on free trade and accumulated external debt are among the other alarming similarities between Sri Lanka and Pakistan.
Sri Lanka provides a historical illustration in this case. In a debt/equity swap, Sri Lanka has transferred the Hambantota port, and power plant and may transfer the airport to Chinese control because it is unable to pay off its debts. Additionally, debt service consumes 90 per cent of Sri Lanka’s revenue. Another example could be Venezuela, where China made the largest investment of any single country so far, investing $52 billion from 2008 to 2014.
One cannot deviate from the fact that China is one strong ally in the region that Pakistan needs for both its sustained economic gains and political stability.
In the case of the African region, Sub-Saharan Africa’s public debt has increased from 34 per cent in 2013 to 53 per cent in 2017. A major portion of Kenya’s $36.4 billion worth of external debt (as on June 2022) is from China. Kenya has already paid USD 972.7 million on Chinese debt so far and Kenya’s treasury projects and debt repayments to the Exim bank of China will raise to USD 800 million in the next financial year. Kenya’s auditor general recently issued a warning that if the country defaults on loans from the China Exim Bank, it runs the risk of losing control of Mombasa port. The terms of a US$2.3 billion loan for Kenya Railways Corporation specify that the port’s assets are collateral, and due to a waiver in the contract, they are not protected by Kenya’s sovereign immunity. China has provided 30 per cent of Ethiopia’s total new public external debt over the past five years and China’s Exim bank has recently refused to release USD 339 million meant for Ethiopia’s infrastructure projects.
The same can be applied to Pakistan, where the country’s total debt, is close to $72 billion, or close to 70 per cent of GDP, and the current account deficit has increased close to 120 per cent. With the Chinese silk road project, the interest will be in the range of seven per cent, payable in 25 to 40 years, and Pakistan will be required to pay roughly seven to eight billion dollars as EMI for the ensuing 43 years, beginning in 2018 and so on. It appears impossible for the nation to pay back both the principal amount and such a hefty interest rate.
No doubt, the Chinese silk road project is a colossal entity in the region, where China has been investing in the infrastructure sector of Pakistan, but necessary measures may be taken at the earliest to avoid Pakistan going Srilanka’s way. The latest developments have not only transmuted the region, generating a pool of jobs for locals but also purportedly offer long-term sustainable economic gains. The situation is however contentious regarding the local concerns of Gwadar in Baluchistan. People including local fishermen purveying the marine resources had been at risk of losing their livelihood because of Chinese investment in Gwadar. Moreover, the locals had not been provided with a substitute for their loss of profession. The recalcitrant behaviour of locals is justified at their end but there’s another side of the coin, which is more striking.
The piled-up foreign debt and shrinking foreign reserves are egregious to indulge in further loan programs which are required to proceed with the Chinese project. While these are enough signs to prove that Pakistan will go down the exact path shortly, the situation in Sri Lanka should serve as a warning to Pakistan’s upper echelons that financial and governance mismanagement could lead to a Sri Lanka-like situation in its backyard.
To resolve Pakistan’s monetary issues, the public authority ought to reconsider settling the economy in a manner that wouldn’t reserve its gains and political uprisings don’t plunge into societal strife. In essence, Pakistan’s economic recovery and stability can only be sustained with the support of a broader dialogue and citizen engagement. While projecting the bigger picture, one cannot deviate from the fact that China is one strong ally in the region that Pakistan needs for both its sustained economic gains and political stability, but the foreign affairs echelons also bear the responsibility to generate a wide range of regional investors to help mitigate the eminent effect of the debt trap, on the same patterns, which resulted in the downfall of Sri Lanka. This requires a cohesive national economic approach to set the patterns, which allows Pakistan to engage with more than one economic partner. The Shanghai Corporation Organization is also one such platform that safely vouches for its members the opportunity to engage in enhanced cooperation, which Pakistan must seek. Missing out on the opportunity for Russian oil and Iranian gas would be a blunder. The potential to explore the enhanced trade routes with its neighbours would also be a good direction to help alleviate the poor conditions at ground level. Eventually, it’s a matter of national interest and Pakistan shall take effective corrective measures to evade this precarious debt trap economic situation.
The writer can be reached at qamarsalam1 @gmail.com