China uses the assets of countries trapped in debt traps to its advantage. There is evidence of its influence on infrastructure assets in African countries, as well as neighbouring countries like Pakistan and Sri Lanka. Speaking of Sri Lanka, it has taken the Hambantota Port on a 99-year lease. For Pakistan, China’s debt is becoming a problem for the China-Pakistan Economic Corridor (CPEC).
The cost of the Pakistan component of the CPEC project is over 25 billion US dollars. It is clear that Pakistan has to provide such a large financial capital to Chinese lenders, making it the largest foreign debt accumulator for Pakistan. What has made it even more concerning is the flat commercial rates at which Pakistan borrowed the loan. These interest rates are mostly over 7 percent, which is significantly higher compared to lenders like the IMF. The IMF provides loans at 2 percent.
China's rescue loans to Pakistan show a shift in focus from developmental projects to averting default risks. With $28.13 billion in rescue loans, China has become Pakistan's largest debt source.#Lanat #Establishment @sirajofficial @SAfridiOfficial @fbhutto pic.twitter.com/DRf3H0s96m
— Mahal Baloch (@MahalBaloch111) November 10, 2023
Pakistan has repeatedly called China its best friend, but the high-interest rates on the loans provided by this friend have trapped Pakistan in a debt trap, making it difficult for Islamabad to repay the debt.
Interestingly, even repaying the interest on the debt is becoming challenging for Pakistan. According to the State Bank of Pakistan, the country’s total foreign debt servicing liabilities for the fiscal year 2023 amount to $20.81 billion (792 billion Pakistani rupees).
