Is Pakistan ‘Drowned In Debt’ And Losing Its Political & Strategic Autonomy To China?

China, with its BRI (Belt and Road Initiative) project, is making sure that Pakistan is completely debt-trapped, forced to ‘part’ with its territories, and loses political and strategic autonomy significantly.

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Media reports have indicated that China is not inclined to entertain Islamabad’s request to finance the US$6.1 billion Main Line-1 (ML-1) railway project, the biggest component of the Chinese flagship CPEC (China-Pakistan Economic Corridor) project, at a 1 percent interest rate.

In the ML-1 project, the interest rates have been negotiated, re-negotiated, suspended, and re-commenced. Beijing is aware that in the given global scenario and Pakistan’s precarious financial state, it cannot dictate terms and hence after some posturing, will be forced to accept the Chinese terms, whatever be the cost — political, economic, and strategic.

Notwithstanding the formal assurances by Beijing that everything is on track and both countries are moving fast on the CPEC, the reality tells a different story. Out of the 122 projects identified for the CPEC, work on only 32 seems to have progressed well.

And its ‘iron brother’ China, in the name of CPEC, is exploiting it economically and strategically. The most important rider continues to be that only Chinese companies, equipment, and entities will be involved in the execution of these projects.

The Institute of Policy Reforms (IPR), a think tank affiliated to the ruling party, Pakistan Tehreek-e-Insaf (PTI), has suggested that the country has already got into a debt-trap. It cited the government’s failure to bring reforms and fiscal restraint that have made the situation a national security concern.

It is the talk of national security concern that must ring alarm bells in Islamabad, Washington, and New Delhi, in particular. That Pakistan has been moving towards a debt trap has been well known for quite some time. However, how fast it is going into the Chinese arms with greater regional and global implications, needs a detailed analysis.

According to reports of IPR and State Bank of Pakistan (SBP), Pakistan’s debt to GDP ratio currently stands at a shocking 107% of GDP. The Gross Public Debt has risen from 72% of GDP at $95 billion (2018) to 87% at $112.8 billion currently.

Total external debts and liabilities have risen from 33% of GDP (2018) to 45% (2020). The suspended International Monetary Fund (IMF) loan of $6 billion is yet to be resumed due to Pakistan’s lack of economic reforms.

In such a challenging situation, some political blunders have proved too costly for Pakistan. In trying to dictate terms to Arab countries, it lost both their political support and financial patronage. It is being forced to take about $2 billion in loans at undisclosed interest rates/terms from China to pay back to Saudi Arabia.

The infamous Chinese debt-diplomacy resembles the colonial-era British practices. Seeing the US vacating global political and economic space partially, the Chinese have grabbed the opportunity. Its financial investments on high-interest rates have proved very tough for countries like Congo, Cameroon, Angola, Ethiopia, Zambia, and many others. In the aftermath of Covid-19, they are being forced to renegotiate loan terms with China and most certainly, will have to pay a political and strategic price, besides, of course, an economic one.


Its disastrous impact has been already visible in Laos. When its state-owned electricity company’s debt mounted 26 percent of GDP, Laos was compelled to hand over its majority control to China. Sri Lanka was forced to lease out the strategic Hambantota port and adjoining 6,000 hectares of land to China as part of debt-restructuring.

Tajikistan’s borrowing from China forced it to cede 1,158 sq km of mineral-rich Pamir mountains being exploited now by Chinese companies. Kyrgyzstan is also re-negotiating its loans with China.

Unlike most of the international loans whose terms are explicitly available, Chinese terms are rarely disclosed in the public domain. However, Abdul Basit, a researcher with Singapore-based S Rajaratnam Institute of International Studies, believes that the Chinese loan ratio hovers around a high 15 percent.

A country like Pakistan with a tradition of larger expenditure than earnings, limited infrastructure and economy, high inflation, big corruption, and victim of increasing circular debt, is a big prospect for debt-trap.

Signals are already evident. The strategically significant Gwadar Port that could play an important role in protecting Chinese energy supplies through sea lanes, has already been leased to China for 43 years till 2059.

The Chinese also reportedly have a huge stake in the Karachi Stock Exchange. The way thousands of Pakistani soldiers and officers have been deployed in and around the CPEC projects, especially to protect Chinese managers, engineers, and workers, is also posing a question mark on its military’s professionalism.

In the name of Gwadar safe zone where China, media reports suggest, is building a naval base, the fencing of the port town and preventing the locals to enter it freely, shows the level of Chinese control over Pakistani lands.

The recent incidents of some Pakistani soldiers getting hit and harassed by Chinese workers and protests against lower-wage payments to Pakistani managers against their Chinese counterparts in Lahore Metro indicate the Chinese dominance inside Pakistan.

And finally, a recent bill in the Pakistani parliament virtually puts the entire CPEC under the Pakistan army’s control with no accountability to people, legislature, judiciary, or media. All these further reinforce the view that China’s investments in Pakistan are no longer for commercial reasons but they have political and strategic dimensions as well.

The way Pakistan today is being forced to follow Chinese dictates, albeit informally, coupled with political turmoil, economic decline, and a dwindling number of friends and benefactors in the world, it’s quite possible to see Pakistan or its parts being ceded to China like strategic Shaksgam Valley was done in 1963.

The pride of Pakistan being the ‘lone Islamic nuclear state’ could see making way for a subdued and client state of the ‘Middle Kingdom’ in a not so distant future.

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