One day, China will turn Pakistan into its own “semi-colony,” as it did recently with Sri Lanka.
China has been nice to Pakistan, on the surface that is. It has been building the China Pakistan Economic Corridor (CPEC), which will connect Western China with the Indian Ocean, provided of course that India will allow it.
That could certainly benefit Pakistan, helping the country make a big step forward, from an emerging to a mature economy, creating a lot of jobs in the process.
But it could hurt Pakistan, too. Like adding to Pakistan’s corruption, which keeps pushing the costs of the project higher by the day, making Pakistan more indebted to China, which has been financing the project.
Rising indebtedness comes at a time when the country is already living beyond its means, as evidenced by persistent current account deficits, government debt, and external debt.
Pakistan recorded a Current Account deficit of 3867 USD million in the fourth quarter of 2017, according to Tradingeconomics.com. The country’s Current Account averaged -587.18 USD million from 1976 until 2017, reaching an all-time high of 1418 USD million in the Q3 of 2002 and a record low of -4419 USD million in the Q2 of 2017.
Pakistan accumulated a government debt equivalent to 67.20% of the country’s Gross Domestic Product in 2017. The country’s government debt to GDP averaged 69.30% from 1994 until 2017, reaching an all-time high of 87.90% in 2001 and a record low of 56.40% in 2007.
External Debt in Pakistan jumped to 88891 USD million in the fourth quarter of 2017 from 85052 USD million in the third quarter of 2017. The country’s external debt averaged 53029.34 USD Million from 2002 until 2017, reaching an all-time high of 88891 USD million in the fourth quarter of 2017 and a record low of 33172 USD million in the third quarter of 2004.
Meanwhile, Pakistan’s foreign currency reserves and foreign capital flows are falling, making it increasing likely that Pakistan will seek to reschedule its debt to China. Perhaps, by swapping debt with equity, which in essence will handle CPEC to Beijing.
That’s the model China applied in rescheduling Sri Lanka’s debt, turning the country’s Hambantota port officially into China’s own port, for 99 years. That’s according to a landmark agreement signed early last year, which gives China Merchants Ports Holdings—an arm of the Chinese government—70% stake in the Indian Ocean’s prominent outpost.
As was the case with CPEC, the Hambantota port expansion began with loans from China. But when Shri Lanka could not pay back the loans, Beijing converted these loans to equity, in essence turning Sri Lanka into a “semi-colony,” in a subtle way.
That’s what will eventually happen to Pakistan when China takes over CPEC, and end up collecting tolls from every vehicle that passes through.