Islamabad: Pakistan’s economy is like a ticking time bomb. Factors that contributed to Sri Lanka’s economic crisis have also had a significant impact on Pakistan, whose economy faces similar challenges.
Writing in the Daily Parliament Times, Muhammad Hamza Qamar said that Pakistan has a large amount of debt, high inflation, increase in unemployment and many other macroeconomic problems which clearly reflect the many challenges facing the country. Import dependence on essential commodities, limited foreign exchange sources, restrictions on free trade and accumulated foreign debt are other alarming similarities between Sri Lanka and Pakistan.
From a critical perspective, the China-Pakistan Economic Corridor (CPEC) is built on a USD 46 billion (now USD 55 billion) loan that Pakistan has received from China as part of its sovereign guarantee. According to official documents, these investments were guaranteed 17-20 percent of the rate of return in dollar terms on their equity (only the equity portion, not the entire project cost), an estimated debt-to-equity ratio of 80 percent to 20 percent, said Qamar. is the percentage.
China will cover the cost of its investment in less than 26 months and bleed Pakistan for the next 25 years of the contract. As the Daily Parliament Times reports, the country’s economy could be crippled by such high costs, which would make it a wheelchair affair.
In this case Sri Lanka provides a historical illustration. In a debt/equity swap, Sri Lanka has transferred the Hambantota port, and the power plant and the airport to Chinese control as it is unable to pay its debt to China. Additionally, debt servicing spends 90 percent of Sri Lanka’s revenue.
Another example could be Venezuela, where China made the largest investment of any single country so far, investing US$52 billion from 2008 to 2014. All Chinese loans to Venezuela were backed by commodities, and as a result, Venezuela was obliged to continue to provide millions. Qamar said that barrels of oil to China are helping the Chinese economy to grow further.
This can also be applied to Pakistan, where the country’s total debt, excluding debt from CPEC, stands at US$72 billion, or close to 70 per cent of GDP, and the current account deficit has risen to close to 120 per cent. St., reports the Daily Parliament Times.
With CPEC, the interest will be in the range of 7 per cent, payable over 25 to 40 years, and Pakistan will have to pay around $7-8 billion as EMI for the next 43 years starting 2018. Qamar said, it seems impossible for the nation to pay both the principal amount and such a huge interest rate. Other disclosures are that the terms of the contract in investing in CPEC are one-sided, including the condition that there are no bids against Chinese companies. , Exemption from toll tax for Chinese vehicles and preference for Chinese employees are some of the additional facilities.
China’s conduct in Sri Lankan projects shares a similar pattern that has recently been followed by Pakistan. The piling up foreign debt and shrinking foreign reserves are critical for engaging in further loan programs that are required to go ahead with the CPEC project.