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Home / Business / CPEC to push Pakistan deeper into debt burden, cautions US

CPEC to push Pakistan deeper into debt burden, cautions US

WASHINGTON: The United States has warned Pakistan that the China-Pakistan Economic Corridor (CPEC) would push the country deeper into an already stifling debt burden, foster corruption and repatriate jobs and profits to China.

In a speech, described as “unusually specific” by the international media, the top US diplomat for South Asia warned on Thursday that the multi-billion-dollar project would take a toll on Pakistan’s economy at the time of repayments and dividend in the coming years.

Assistant Secretary Alice Wells explained that CPEC was not an aid to Pakistan but a form of financing that guarantees profits for Chinese state-owned enterprises, with little benefits for Islamabad.

As an international media report pointed out, this specific warning comes at a time when Washington and Islamabad are trying to rebuild their turbulent relationship.

Addressing a gathering of diplomats, scholars and journalists at a Washington think tank, the Wilson Center, Ms Wells also quoted specific examples from the project.

“CPEC’s most expensive single project is upgrading the railway from Karachi to Peshawar. When the project was initially announced, the price was set at $8.2 billion,” she said.

“In October of 2018, Pakistan’s railways minister announced that they had negotiated the price down to $6.2 billion, a saving of two billion. And he explained Pakistan is a poor country. We cannot afford this huge burden of these loans.”

“But recent media reports claim the price is now risen to $9 billion,” she added. “So, why doesn’t the Pakistani public know the price for CPEC’s most expensive project or how it’s being determined?”

The US diplomat also underlined the long-term effects in Pakistan of China’s “financing practices” and urged Islamabad to examine “the burdens that are falling on the new government to manage with now an estimated $15 billion debt to the Chinese government and $6.7 billion in Chinese commercial debt”.

Ms Wells also emphasised the need for Pakistan to know that China was providing loans, not grants, as the United States.

“It’s clear or needs to be clear that CPEC is not about aid. This is almost always the form of loans or other forms of financing, often non-concessional with sovereign guarantees or guaranteed profits for Chinese state-own enterprises that are repatriated to China,” she said.

“Now, together with non-CPEC Chinese debts payments, China is going to take a growing toll on the Pakistan economy, especially when the bulk of payment starts to come due in the next four to six years.”

Ms Wells warned that even if loan payments were deferred, “they are going to hang over Pakistan’s economic development potential, hamstringing Prime Minister (Imran) Khan’s reform agenda.”

Directly addressing the alleged lack of transparency in CPEC projects, she said this could increase projects costs and foster corruption, resulting in a heavier debt burden for the country.

Ms Wells also challenged the notion that CPEC would create jobs in Pakistan. “CPEC relies primarily on Chinese workers and supplies, even amid rising unemployment in Pakistan,” she said.

The US diplomat also demanded more transparency on the proposed link between Gwadar Port and China’s Xinjiang while responding to a question that New Delhi saw this as a military project aimed at encircling India.

She said that while CPEC would only benefit China, the United States offered a better model and urged Islamabad to introduce economic reforms that would encourage US investors to invest in Pakistan.

She also recalled that during PM Khan’s July visit to the White House, US President Donald Trump had offered to greatly enhance American trade with Pakistan.

Ms Wells acknowledged that the United States could not offer investments from state-run companies. But, she added, the private US investment, coupled with grants, would improve Pakistan’s troubled economy.

“There is a different model,” she said. “Worldwide we see that US companies bring more than just capital; they bring values, processes and expertise that build the capacities of local economies.”

She pointed to interest in Pakistan by US companies including Uber, Exxon Mobil, PepsiCo and Coca-Cola, with the soft-drink makers together investing $1.3 billion in the country.

Her speech appeared linked to a major offensive that Washington has recently launched against Beijing’s Belt and Road Initiative, a signature project of President Xi Jinping which aims to build ports, highways and railways around the world.

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