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Is China and CPEC pushing Pakistan to economic ruin?

Current outlook of Pakistan’s economy

Pakistan is about a couple of months away from elections. These elections will certainly be shrouded in controversy, one way or another. Worryingly for Pakistan, it appears that the economy is weakening, just in time for the instability that will follow from the country’s turbulent politics. Already military lead Deep State has chosen its PM as Imran Khan, leader of PTI (Pakistan Tareek-e-Insaf).

Under the present outgoing government which was led by Nawaz Sharif till last April, a three times Prime Minister, the economy appeared to be doing well. A new energy had infused into Pakistan’s entrepreneurs and investors. In the last fiscal year, the economy grew at 5.8 percent, the fastest rate in 13 years.

This now appears to change permanently. Economists polled for the survey worry that, in the next fiscal year, growth will slow to lower than 5 percent. A full percentage point below the present government’s own optimistic forecast.

China Pakistan
Chinese investment in Pakistan

CPEC influence on Pakistan Economy

The problem is that much growth in the recent past has been unbalanced, depending particularly on investment from China along the China-Pakistan Economic Corridor (CPEC). CPEC is a branch of Chinese President Xi Jinping’s world-spanning Belt and Road Initiative. China’s big bet on Pakistan’s infrastructure has to be paid back at some time, in part through the purchase of Chinese heavy engineering and other inputs. Thus destroying the growth of indigenous industry capable of producing capital goods.

These imports have swelled Pakistan’s current account deficit beyond 50 percent, to a record high of over $14 billion. Pakistan’s central bank had to devalue its currency twice to contain the damage. It is left with few options other than running down the country’s foreign-exchange reserves. Over the past fiscal year, a third of the reserves have evaporated. This has forced the central bank to borrow around $2 Billion from China. It is expected that Pakistan would require another $2 Billion from World Bank or China to tide over its balance of payment crisis.

These are the classic signs of fragile economy that is failing. Failure to tighten its belt where needed would definitely be fatal. The outgoing government to its credit, tried to correct course slightly in its annual budget last month by cutting infrastructure spending by 20 percent.

The economists polled for the survey also pointed out that the government’s other expenditures such as wages, pensions, etc went up by 20 percent. There’s an election on, the pampered Pakistan military had its budget raised by more than 20 percent to extricate itself from pressure on Indian border. Traditionally Indians used to be calm but off late they have started replying hard on Pakistan Army increasing its expenditure.

The possible future outlook for Pakistan economy

Many International and Pakistan based think tanks and analysts expect that Pakistan is going to have to turn to the International Monetary Fund in a few months, particularly if its reserves continue to dwindle at this rate. Even the rabidly anti-West opposition leader, Imran Khan, has reportedly admitted in private that he would approach the IMF for help if he’s elected.

The problem is that Pakistan’s leaders have put all their eggs in one basket called CPEC. The CPEC has only one advantage for Pakistan’s economy. It has helped address the country’s chronic power shortage but at an exorbitant cost. On the sidelines China forces Pakistan to buy Chinese equipment for use in Chinese projects, shredding its reserves. Beijing is readily extending loans to cover the purchases, which sends Pakistan’s debt soaring to newer heights.

Pakistan’s external debt is now $91.8 billion an increase of 50 percent since Nawaz Sharif was sworn in as Prime Minister almost five years ago. The public debt-to-GDP ratio is 70 percent, far higher than most of the country’s peers. More than two-thirds of the early loans from China have been extended at a very high rate of interest of seven percent, according to some experts.

The next government even if it is again the present party will have to recognise that Pakistan’s China-first economic model has broken and taking it towards bankruptcy. This is not the first time that Pakistan will have to run towards West for a bailout package. Already one of the projects in Neelam Valley is going to become redundant as India has diverted water of the Kishan Ganga into Jhelum. Recently World Bank refused to mediate as India did not violate Indus Water Treaty.

Pakistan reeling under CPEC

Frankly seeing, it looks like a Hollywood movie that Pakistan is bankrupted by China and then it approaches the West i.e. the IMF for help. China and Pakistan may be “ironclad friends,” but this isn’t what friends do to each other.


The truth is that the cure for Pakistan’s economy is obviously too difficult at this stage. Just too difficult for politicians to implement effecting the common citizen greatly. Pakistan needs to be integrated with the global economy, not just with Chinese extractive state. Moreover, time to time people of western provinces have been staging protests over their exploitation by the Punjabi Army.

Only after Pakistan begins to export more to the world it may be able to pay for its investment needs. Currently, the exports-to-GDP ratio is below 10 percent, far lower than other countries in the region. The Sharif government began structural reforms, but that effort faded away as it ran into the corrupt interests of Deep State in Pakistan. Destroying the leadership totally.

Today the Deep State which is calling shots does not have any responsibility to the people. The military which is, in fact, Deep State in this budget got the cake leaving nothing for the welfare of the people. This is due to its friendship with China and only China.

25 Jan 2019/Friday                                                                          Written by Mohd Tahir Shafi

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