Indulged in soaring inflation and political unrest, Pakistan faces another grim economic challenge as China demanded a mammoth $55.6 million repayment for a mega-development project by November next year.
The project is Chinese-backed 27km commuter train line – Lahore’s Orange Line Metro Train – whose construction began in October 2015 before starting commercial operation five years later, according to Italian publication Osservatorio Globalizzazione. Critics also blasted the project for endangering numerous historical sites across Lahore.
As part of the China-Pakistan Economic Corridor (CPEC), the $1.8 billion Orange Line is the first of three planned metro lines in Lahore.
Even though it was built with Chinese backing, there have always been growing questions about the huge amount of debt Pakistan has taken on in recent years.
Pakistan must be closely watching developments in Sri Lanka, for it could be next nation to face the consequences of bad economic policies and heavy debt burdens, warns the Italian publication.
At the end of March this year, the foreign exchange reserves in Pakistan dropped by a massive $2.915 billion, due to the repayment of external debt, observes the ANI.
Hence, Pakistan faces a bleak economic future as far as relations with China are concerned, the news portal adds.
The nation of 220 million people is facing a balance of payments crisis, with foreign reserves falling below $10 billion as of early June, hardly enough for 45 days of imports, and a widening current account and ballooning fiscal deficits.
The situation turned so worse that Pakistanis last week were asked to drink fewer cups of tea to keep the country’s economy afloat.
The Chinese company, China-Railway North Industries Corporation (CR-NORINCO) which completed the project demanded from the Punjab Mass Transit Authority, an outstanding sum of $45.3 million by the end of March 2023 and the remaining amount by the end of the year.
The CR-NORINCO has insisted that all dues be repaid before the expiry of the contract on November 16, 2023, reports Osservatorio Globalizzazione.
China has made a hard bargain with Pakistan when it comes to paybacks on its loans and other investments in Pakistan. In the fiscal year 2021-2022, Pakistan paid around $150 million towards interest to China for using a $4.5 billion trade finance facility. In the financial year 2019-2020, Pakistan paid $120 million towards interest on $3 billion in loans.
The Chinese demand for the Lahore Line payment was made in the first week of April when Prime Minister Shehbaz Sharif took the office. Earlier, at the beginning of March, China acceded to Pakistan's request to roll over a whopping $4.2 billion debt repayment to provide a major relief for its all-weather ally, the report adds.
China has been quite stringent in recovering money from Pakistan. Take Pakistan's energy sector for instance, where Chinese investors have repeatedly insisted on resolving issues relating to existing project sponsors in order to attract fresh investment.
Some Chinese projects in Pakistan are facing problems in securing insurance for their loans in China due to Pakistan's massive energy sector circular debt of about $14 billion.
Pakistan has to pay around $1.3 billion to Chinese power producers and so far only $280 million has been paid. Another example of hard bargaining by China over monetary dealings vis-a-vis Pakistan is well documented in the case of the Dasu Dam Project. Last year, China demanded $38 million towards compensation for the families of 36 engineers who had died in the Dasu Dam terror attack.
Compensation was made a precondition for resumption of work on the project. To placate China, Pakistan subsequently agreed to pay $11.6 million as compensation.
While China is heavily responsible for Pakistan's debt problem, it is the mishandling of Pakistan's economy by successive governments that has led to the current impasse.
Extensive loans taken from China, Saudi Arabia and Qatar as well as 13 loans from the IMF over 30 years (with most loan programmes called off mid-way for failure to fulfil loan conditions), is a major cause for the economic downturn.
The 6 billion IMF loan granted in 2019 is also on hold, and China has dealt with Pakistan's frequent requests to help.
This strategy has not paid dividends and is only making Pakistan sink deeper into debt, Osservatorio Globalizzazione maintains.
