Having a special agenda to tarnish Pakistan, Pak-Sino friendship and, of course, the China- Pakistan Economic Corridor (CPEC), the Western media and lobby are once again geared up with a new series of propagating articles and conspiracy theories. The latest edition is Germany’s Deutsche Welle article titled “How Chinese Loans Trapped Pakistan’s Economy,” written by Haroon Janjua and published on August 2, 2024. This article seems to purposefully twist the facts and try to establish CPEC as the mother of all debts, inflicting damage on Pakistan’s economy and repayment capacity. However, reports from the SBP, Finance Ministry, Planning Commission and SECP all contradict this view.
The timing of this false propaganda is significant because Pakistan is about to hold final negotiations with the IMF for a further US$7 billion loan. An interview-based article appears to sabotage these negotiations through a sponsored agenda, leveraging borrowed wisdom from national pseudo-intellectuals and so-called experts. These Western-aligned egomaniacs have dubbed CPEC as a debt trap for Pakistan, which is totally untrue and based on fallacies rather than facts.
Pakistan’s Ministry of Planning, Development and Special Initiatives’ CPEC Secretariat reaffirmed that the country joined CPEC due to “favourable financing arrangements” and that China has “stepped forward to support Pakistan’s development at a time when foreign investment had dried up.”
According to DW, Pakistani Finance Minister Muhammad Aurangzeb and Prime Minister Shehbaz Sharif allegedly stated that the government requested debt re-profiling from the Chinese government. However, there is no concrete documented evidence to support this claim, making such conspiracy theories seem like wild fantasies.
Additionally, Azeem Khalid, an expert on Chinese investment in Pakistan, told DW that the China-funded power plant development has exacerbated Pakistan’s economic difficulties. In reality, Pakistan’s poor absorption capacity and inability to progress on projects according to schedule are major factors in its economic challenges, rather than Chinese investment.
The Economic Affairs Division of Pakistan reported that Pakistan’s total foreign debt exceeds US$120 billion, with Chinese loans accounting for only 10 to 11 percent of this total. The remaining 89-90 percent comes from other sources, including the IMF, Paris Club and other Western organizations. CPEC-related government loans have an interest rate of only two percent, contrary to DW’s claim of 3.7 percent, and have a repayment period of 20-25 years. Thus, repayment can be managed easily in the future. CPEC does not impose an immediate burden concerning loan repayment and energy sector outflows; rather, the benefits of this investment will outweigh the debt-related outflows.
Leading rating agency Moody’s and international audit and consulting agency Deloitte have stated that CPEC will contribute up to 2.5 percentage points to the country’s growth rate, highlighting the strategic importance of CPEC’s investment and projects in Pakistan.
Objectively, Pakistan’s prevailing debt crisis can be attributed to various external factors, including the ongoing Ukraine conflict, the United States Federal Reserve’s high interest rates, fears of a severe economic recession in the US, the US-China trade war, US unilateral sanctions and the Middle East crisis. These factors have already exacerbated Pakistan’s economic problems. Pakistan’s external borrowing is necessary to bridge the trade deficit, import essential goods and fund significant infrastructure projects.
Political polarization, a surge in terrorism, poor safety and security for the Chinese, politically-motivated national vested interests, a weak judicial system and bureaucratic impediments have also affected the efficacy and productivity of CPEC, which is not a favourable sign for the country.
Further analysis of SBP’s data reveals that loans from multilateral development partners (including the IMF) and bilateral countries constitute 53 percent and 22 percent, respectively.
CPEC has helped build an enabling economic environment in Pakistan, focusing on energy, education, and the economy as key pillars. China has invested US$25.4 billion in direct projects in Pakistan creating 236,000 jobs, generating 8,000 megawatts of electricity and building 510 kilometres of highways and 886 kilometres of the national electricity grid.
Additionally, about 28,000 Pakistani students are studying in China and more than 20,000 Pakistanis are learning Chinese. National experts view CPEC as a blessing and a guarantor of Pakistan’s future socio-economic prosperity and poverty eradication.
It is estimated that the country’s GDP will increase by 6.43 percent by 2030 due to infrastructure investment. According to a World Bank report (2019-2020), social welfare development from CPEC Phase-II would increase by 10.51 percent, potentially lifting 1.1 million people out of extreme poverty and creating up to four million new jobs. Trade is also expected to increase by 9.8 percent if Pakistan implements CPEC and supports it with the required reforms.
CPEC has already created 75,000 new jobs in Pakistan, benefiting 75,000 families and helping them combat extreme poverty. Furthermore, CPEC has contributed to managing load-shedding which has helped control the annual loss of $4 to 5 billion. The contribution of CPEC to the national GDP was nearly two percent, allowing Pakistan to surpass the 5.8 percent GDP growth rate in 2018. However, political instability has undermined economic stability and its sustainability.
In summary, Pakistan needs political stability, a drastic reduction in terrorism, resolution of IPP capacity payments, utility cost reductions, price stability, a broader tax network, export diversification and improved transparency and international cooperation to overcome economic recession. Dynamic economic diplomacy, a balanced foreign policy, a focus on East Asia and Central Asia, regional economic and transport connectivity and effective operationalization of domestic banking funds and pension system solutions are vital. Ensuring safety and security for Chinese investments and CPEC projects should be prioritized.
Moreover, incorporating blue and green hydrogen power generation technology, lithium batteries, solar and wind panels, technological agricultural production and hybrid varieties of crops into CPEC Phase-II is essential. Revising the national narrative towards CPEC and China, as well as improving the selection of journalists and experts, is crucial for addressing hybrid 5th generation warfare effectively. The focus should be on experts and loyalists, rather than mere loyalists or superficial observers.
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