Sino-Pak Relations: About Friends And Masters – OpEd

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The good news is that in its Global Trends 2021 report published every four years, US National Intelligence Council has assessed that in the next two decades, Pakistan’s gross domestic product [GDP] would jump 17 slots and make it the world’s 23rd largest economy. The bad news is that the way things are panning out doesn’t inspire much confidence that for Pakistan the present or immediate future would be bright. Whereas, the covid pandemic has played rogue in Pakistan’s march into progress, but there are many other ‘villains’ that have since long been compounding the country’s economic woes. 

Just last month, Special Assistant to Pakistan’s Prime Minister on Power and Petroleum Tabish Gauhar made a startling disclosure regarding the precarious position of the country’s ‘circular debt stock’ [money that government owes to independent power producers [IPP] to meet the shortfall on account of subsidised electric tariff that it provides to consumers]. He revealed that in case no remedial steps were taken, the country’s current circular debt stock, [which currently stands at Rs 2.3 trillion] could double to Rs 4.6trillion [tr] in just two years. 

What makes this this revelation disquieting is the fact that despite Prime Minister Imran Khan’s repeated claims of having controlled Pakistan’s debt crisis, the circular debt stock [which stood at 1.1tr under PML-N government] has more than doubled to 2.3 tr in just two-and-a-half years of the PTI government’s rule. Moreover, with Pakistan’s Finance Minister Shaukat Tarin’s announcing that International Monetary Fund [IMF] had been informed that Islamabad would not raise tariffs, the circular debt crisis is bound to get even more acute- not a very encouraging proposition as far as making Pakistan the world’s 23rd largest economy is concerned!  

Pakistan’s financial misery can be attributed to two main reasons. One, it has always been heavily dependent on foreign aid and to achieve this it readily became Washington’s frontline state- first, through the cold war, thereafter during Soviet occupation of Afghanistan and after 9/11, by joining America’s war on terror. Plush with foreign aid and with Generals running the country for most of the time, precious little was done to reinvigorate the country’s sagging economy. The second reason for Pakistan’s financial woes is Rawalpindi’s over-obsession of achieving militarily parity with India, for which the armed forces of Pakistan pocket a lion’s share of the country’s GDP. 

Pakistan’s military fixation stood out like a sore thumb even during outbreak of covid pandemic last year. On the one hand, Prime Minister Imran Khan made passionate appeals to the international community for loan waiver pleading that “We don’t have the money to spend on already the overstretched health services and to stop people from dying of hunger.” Nonetheless, despite humungous financial crisis due to covid pandemic, Islamabad still approved a whopping 11.9 percent increase in the country’s defence budget. Similarly, even though Pakistan got the benefit from the G-20 debt service suspension Initiative [DSSI] relief, plus a $1.4 billion emergency funding from IMF for fighting the covid pandemic, its vaccination programme ranks amongst the lowest in the region. Yet, despite being unable to find the money to vaccinate its people against the covid pandemic, Pakistan army has no qualms in negotiating a 2018 deal worth $1.5 billion for buying 30 attack helicopters from Turkey!

Islamabad has repeatedly been warned by the international community and IMF against taking “excessive loans” from Beijing’s and resultantly falling into debt trap, but to no avail. Au contraire, Islamabad has gone to the extent of not only taking ginormous loans for the China-Pakistan Economic Corridor [CPEC] and Belt and Road Initiative [BRI], but has even borrowed money at undisclosed rates of interests to repay its outstanding loans to Saudi Arabia- a novel [but economically debilitating] strategy that could be aptly phrased as ‘borrowing from Xi Jinping to Pay Mohammed bin Salman! However, latest developments related to financing of Main Line 1[ML1] railway project, which is the largest CPEC project, indicates that Beijing’s unbounded munificence towards its “all weather friend” Islamabad seems to be wearing out. 

In December last year, media reports quoted unnamed Pakistani officials saying that in view of the terms and conditions of the G-20 DSSI availed by Pakistan, China was seeking additional guarantees from Islamabad prior to releasing a $6 billion loan for ML-1 railway line project. It was also reported that while Islamabad had requested this loan at concessional rates of interest, Beijing wanted to give it at both concessional and commercial interest rates. However, since Chinese Foreign Ministry spokesman Zhao Lijian not only rejected this claim but even said that Chinese inputs in CPEC had “increased against the odds,” this news soon became a non-issue.

However, just the other day, media was once again abuzz with news of some disagreements on the ML-1 railway project loan issue, and this time the media cited records of a meeting held between Chinese and Pakistani officials as well quoted senior Pakistani officials by name. The Express Tribune mentioned Deputy Chairman Planning Commission Dr Jehanzeb Khan saying that “The Chinese side have sought clarification regarding the possibility of raising further debt by Pakistan during currency of the IMF programme.” A written communication between Beijing And Islamabad purportedly mentions that “The Chinese side expressed concerns about Pakistan’s debts, including IMF’s requirements for the Pakistani government to avail loans and about the impact of restrictions under the G-20 DSSI on the financing of the ML-1 project.” 

From information available, the deadlock on financing the ML-1 project appears to be rather serious as Beijing has adopted a not-so-benign stance, such as:

  • Refusal to accept Islamabad’s request for loan as a mix of US dollars as well as RMB [Chinese currency] and instead insisting that the entire loan should be paid in RMB. 
  • Not accepting Islamabad’s request for release of entire loan amount at concessional rates.
  • Rejecting Pakistan’s request for scheduling a repayment over 25-years with a 10-year grace period, and instead, insisting on a 15-20-year loan repayment period with a grace period of only five years. 

It’s time Prime Minister Imran Khan woke up and smelt the coffee, because while domestic audiences may believe that the miracle called ‘Naya [New] Pakistan’ would happen-but Beijing doesn’t, and for good reasons. Pakistan’s public debt which stood at 72.5 of its GDP when Khan came into office has shot up to a stupendous 87.2 percent in the last fiscal year, and as mentioned above, the country’s circular debt which was Rs 1.1 tr under the previous government, has more than doubled and is touching an astounding Rs 2.3 tr. Since Pakistan’s accumulated loans are in far excess of its repayment capacity, it’s but natural for Beijing to be fiscally more cautious while committing additional funds on CPEC projects.

Beijing’s hesitation in extending loans to Islamabad is evident from the fact that the ML-1 railway project continues to languish in suspended animation for the last three years- a far cry from Beijing’s recent claim of having speeded up work on CPEC projects. However, the most damning indication of China’s tardiness on financing the ML-1 project comes from the fact that three years after its approval, Beijing has now suddenly realised that extending the $6 billion loan for ML-1 project was difficult as this debt could not be taken on its books due to the decrepit financial condition of Pakistan Railways! 

Islamabad has been touting CPEC and BRI as a “game changer” that will permanently end Pakistan’s economic crisis. While financial benefits for Pakistan from these projects are yet to accrue, the CPEC ML-1 railway project has certainly proved to be a ‘game changer’ as it has successfully created perceptible differences between two countries that keep singing peans about their “all-weather friendship that is higher than mountains, deeper than oceans, stronger than steel and sweeter than honey”!

It seems that American writer Patrick James Rothfuss was right when he said, “There are two sure ways to lose a friend, one is to borrow, the other is to lend.”

Tailpiece: Former Pakistan President Ayub Khan gave his autobiography the cryptic title of ‘Friends not Masters’– perhaps to record for posterity, his utter disenchantment on Washington’s ‘betrayal’ in not standing by it’s cold war ally Pakistan during its 1965 conflict with India. However, with Beijing slowly becoming more and more assertive on financial issues concerning CPEC and BRI, could Ayub Khan’s enigmatic phrase regain relevance in Sino-Pak context in the days to come?

Nilesh Kunwar

Nilesh Kunwar is a retired Indian Army Officer who has served in Jammu & Kashmir, Assam, Nagaland and Manipur. He is a ‘Kashmir-Watcher,’ and now after retirement is pursuing his favorite hobby of writing for newspapers, journals and think tanks.

2 thoughts on “Sino-Pak Relations: About Friends And Masters – OpEd

  • May 13, 2021 at 6:24 am
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    “Give a man a fish, and you feed him for a day. Teach a man to fish, and you feed him for a lifetime”. Some claim that that this adage is Chinese though contested. However, both the Americans and Chinese started as friends of Pakistan but both most of the time became or are becoming masters. Though cautioned by Ayub Khan! Both have made Pakistan dependent on begging and borrowing and did not teach their friend how to become self-dependent and self-financing. So ‘Naya Pakistan’ is not likely to happen as promised by Imran Khan and predicted by Global Trends 2021 as the Chinese are not looking for a pound of flesh from their all-weather friend through the CPEC and BRI but much more…!

    Reply
    • May 13, 2021 at 7:23 am
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      Well said… as the say, CHINESE GOODS MAY BE CHEAP, but CHINESE AID DOESN’T COME CHEAP!
      All the Best to PM Imran Khan and his team!

      Reply

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