The Islamic Republic of Pakistan, an all-weather friend and iron brother of China has been severely hit by an economic crisis. Akin to the Situation in Sri Lanka, many analysts believe that Pakistan (a Colony of China) will meet the same fate as it was in Lanka. At the moment, Pakistan is now on the verge of being bankrupt. There is gross unemployment, and inflation has skyrocketed. The Pakistani rupee has lost all its value in the international market.
The economic situation in Pakistan has turned worse especially during Imran Khan’s tenure as the prime Minister of Pakistan. Both China and Pakistan are so-called vassal states of China. As a part of China’s String of Pearls strategy, China is isolating India by building bases in and around the subcontinent. In this context, China has a port in Sri Lanka Called the Hambantota Port. Similarly, Pakistan too has a Chinese port at Gwadar. It is a deep-sea port in Baluchistan. The increase in defence spending and its ongoing fight against extremism is taking a toll on its economy.
Import dependencies on essential commodities, limited foreign exchange sources, restrictions on free trade and accumulated external debts. All of these are similar symptoms of economic disasters that happened in Sri Lanka. From a critical point of view, the CPEC will is built on a 46 billion loan that Pakistan has received from China as a part of its sovereign guarantee.
According to official documents, these investments were guaranteed a 17-20% rate of return in dollar terms on their equity. China will recoup the cost of its investment in less than a period of 26 months and bleed Pakistan for the next 25 years of contract duration. Sri Lanka has a historical example. It has transferred the Hambantota port and powerplant along with an airbase to China in a debt/equity swap as it is unable to pay off its debts.
Another example is Venezuela where China made the largest investment in any country, around 52 billion USD from 2008 to 2014. All the loans to Venezuela were backed by commodities and as a result, Venezuela had to continue to provide millions of barrels of oil to China helping the Chinese economy to grow at a further pace.
The same can be applied to Pakistan, where the country’s total debt, which does not include debt from CPEC, is close to USD 72 billion or close to 70 per cent of GDP, and the current account deficit has increased close to 120 per cent.
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