CPEC And Debt On Pakistan
CPEC And Debt On Pakistan: In Pakistan, China is the most active and positive economic force. Many of the infrastructure projects are financed through debt and the terms of the cooperation, and the costs are not made public or advertised.
They are Chinese projects built for China’s geopolitical and economic advantage, but they will be apparently owned by the Pakistani state, so the Pakistani state will pay for them, with loans from China.
Cost of Servicing Debt
By June 2019, Pakistan will owe Beijing $19 billion. But the interest rate on those loans averages an astronomical 7% per annum, payable over 25-40 years.
According to expert’s calculations, the cost of servicing the debt owed to China will average $7 to 8 billion per year, for the next 43 years, starting from now. To begin with, that will be between 0.5 to 1% of Pakistan’s Gross Domestic Product (GDP).
Why Chinese Loans?
China has been extending loans on unsustainable terms throughout South-East Asia and the Pacific region.
There is a reason why Pakistan is becoming increasingly dependent on Chinese loans. That is because the normal financial channels for sovereign debt would not extend such loans to Islamabad.
No western investor would expect Pakistan to be able to pay off these kinds of debts on these kinds of terms.
Beijing will extend payment terms, or underwrite those parts of the debt which the debtor countries cannot afford provided the local governments understand Beijing’s point of view on this issue of infrastructure, or that issue of geopolitical alignment, and so on.
Chinese Debt Book Diplomacy
Chinese “debtbook diplomacy”, try to shake free of Chinese impositions to countries most likely be confronted by the prospect of sovereign debt default.
So when China will come in and ask for concessions, Pakistan will have no choice but to comply. And the price will be paid by the average Pakistani citizen as always.
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