The ongoing financial crisis in Pakistan and the economic slowdown in China appear to have had bearing on the progress of the China-Pakistan Economic Corridor (CPEC) programme. Not just it is causing delays but has made the megaproject struggle for funds. The CPEC project that was commenced a decade ago was held as a harbinger of prosperity for Pakistan. However, seven years later, many projects under the CPEC still remain non- starters while some of those being operational have become liabilities and are incurring losses. Beijing’s refusal to release the promised funds has affected the CPEC project implementation. At the same time, cash-strapped Pakistan is being compelled to repay Chinese loans procured so far.
When the CPEC was launched in 2013, it was reported to be valued at around USD 40 -42 billion, though most of the conditions in the agreement remain vague or hidden from general public knowledge. Barring a few power projects, the major CPEC projects remained on paper till 2020 when the much-touted infrastructure programmes saw cost escalation to around USD 62-65 billion. Now, it is said the cost has increased further, thanks to the increase in the capital cost of the different projects under the CPEC.1 The recent developments suggest Beijing is losing interest and confidence in the CPEC. This is going to be difficult for the Islamabad government as the CPEC would remain incomplete, become a huge liability, and send Pakistan into a debt-trap.
Implementation of an important CPEC project, the Mainline1 (ML-I)–railway line between Karachi and Peshawar—has been asked to be shelved by the Chinese government over feasibility issues.2After China’s backout, Pakistan has decided to build it on its own since the 1,871-km ML-I is one of the major four railway lines in Pakistan. However, the Islamabad government now will have to shell out a whopping USD 11-12 billion for the project. It was earlier pegged at USD 6.8 billion.3“If we don’t start the ML-I project immediately, the mainline of Pakistan Railways will likely collapse within one year,” said Ahsan Iqbal, Pakistan’s Minister for Planning and Development.4 China has been non-committal on supporting the Mainline 1 upgradation project. Similarly, another crucial project, the Karachi Circular Railway (KCR) also has been dropped off the list of CPEC projects. And Pakistan does not have the funds to construct it. Pakistan Railways Minister Khawaja Saad Rafique said the project was not “doable” after China backed off. “Looking at our circumstances, I don’t see the KCR happening, really,” he said. 5Despite Pakistan’s repeated requests, China has not yet considered financing the KCR.6Islamabad government is not in a position to build the KCR, whose cost now has escalated by 44 per cent.7
China’s economic situation in 2022 has been the worst in the past five decades as the GDP growth remained below 3 per cent. Even though China may see economic recovery in 2023, it may not be able to extend financial support to Pakistan.8Pakistani politicians have been meeting the Chinese Ambassador and making trips to Beijing trying to get pledged funds for CPEC. However, there have been just promises and assurances. The progress of the CPEC projects getting slower as the financial support from China is shrinking.9 Pakistan’s Finance Minister Ishaq Dar announced in December that China promised to roll over the USD 4 billion loans. However, nothing has been done from Beijing yet.10 Pakistan is facing a double whammy of reduction in Chinese funds and inability to get new infra loans due to economic slowdown. At the same time, it is bound by repaying Chinese loans that account for 30 per cent of its total external debt. 11 Pakistan has been hit by unprecedented floods that shattered Pakistan’s economy. Retail inflation is in double digits, essential commodity prices are skyrocketing, forcing the Islamabad government to slash expenses and salaries. China has been non-committal on releasing more funds for the CPEC. However, Pakistan has been compelled to repay USD 500 million loan due to a Chinese bank, especially, when its foreign reserve has plunged to just USD 4 billion. It is supposed to make a similar payment of USD 300 million by February end. In such a scenario, Pakistan would find it difficult to implement CPEC projects or complete the ongoing ones. The increase in the losses and liabilities would further hurt Pakistan’s economy.
4https://tribune.com.pk/story/2383643/china-urged-to-fast-track-projects 5https://www.dawn.com/news/1696427 6https://tribune.com.pk/story/2383643/china-urged-to-fast-track-projects
8https://www.wsj.com/articles/china-economy-consumer-spending-11675980834 9https://foreignpolicy.com/2023/02/09/china-pakistan-cpec-infrastructure-economy/ 10https://www.dawn.com/news/1727628 11https://www.bloomberg.com/news/articles/2022-09-02/china-s-funding-to-pakistan-stands-at-30-of-foreign-debt