The ongoing deterioration of relations between Islamabad and Washington could end up increasing Pakistan’s vulnerability to China’s financial muscle, an analysis in a widely regarded foreign policy magazine has said. The analysis says the US move to put Pakistan on a terrorism financing watchlist could mean Islamabad’s ‘risky reliance’ on China would only increase.
The analysis, titled ‘Pakistan’s Risky Reliance on China Set to Grow’, appeared in The Diplomat, the online foreign policy magazine. It argued that Pakistan’s re-inclusion on the terror financing watchlist by the global Financial Action Task Force has meant that its already precarious economy would become more reliant on Chinese money.
“Pakistan is particularly exposed because its reliance on Chinese funds to re-energize the country seems likely to deepen, now that the United States has backed away,” read the analytical piece. “For a number of years, Chinese financial assistance has been helping to buttress the flagging Pakistan economy. It was the country’s largest lender last year,” it added.
Noting that China is negotiating yet another loan of $1 billion on commercial terms. “With Islamabad’s reinclusion on the FATF watchlist – it had been removed in 2015 – such provision will add to the already mountainous debt accruing from Chinese loans for the China-Pakistan Economic Corridor (CPEC),” it said.
The piece also touched on steadily growing suspicion and discontent among Pakistan’s political class over CPEC. “Already there are reported concerns among Pakistani decision-makers that many CPEC deals are bordering on exploitative. Analysts say debt repayments are not transparent and procurement and bidding procedures for projects significantly favor China, with Chinese companies winning contracts and using Chinese labor to complete them,” the piece said.
The analysis further said Pakistan’s growing current account deficit and debt problems are bound to be compounded by the country’s plummeting foreign exchange reserves, which fell a whopping 27 percent last year. Islamabad has asked the International Monetary Fund (IMF) for the second bailout in five years. But a recent IMF report cast doubt on Pakistan’s ability to repay what it has already borrowed.
The analysis put all these developments in the perspective of the predatory and debt-trap diplomacy that China has practiced with a number of countries. It said Nepal had already demonstrated jitteriness over blindly accepting the Chinese gift horse, and raised the example of Sri Lanka. “Sri Lanka provides a salutary reminder of why recipients of BRI funds need to be mindful of the long-term implications,” it said. China had seized control of the Hambantota Port for 99 years. This had come after Sri Lanka said it was unable to repay the loans China had given it to finance the construction of the port. Like CPEC, Hambantota too had been widely portrayed as a magic wand solution to lagging economic development.
The analytical warning comes as the honeymoon period is coming to a close to CPEC. An increasing number of Pakistani lawmakers and media houses are now beginning to look at the too-good-to-be-true dalliance with the Chinese and are raising questions. The opacity of various agreements between Pakistan and China have also raised worry. Pakistani senators had recently called for an inquiry into the ownership of the Chinese company that is building and operating Gwadar Port without necessary clearances.