by WorldTribune Staff, August 23, 2018
Pakistani Prime Minister Imran Khan, just days after being sworn in, is looking to avert a financial crisis that could see the country turn over many of its strategic assets to China.
Khan, a former cricket star, “must choose whether to dial back a Chinese-financed development program or increase the country’s reliance on Beijing,” the Wall Street Journal reported on Aug. 21.
Khan’s government needs to borrow about $10 billion to avoid default on foreign debt.
“That debt has ballooned as Islamabad borrowed from Chinese banks to finance the China Pakistan Economic Corridor, a $62 billion scheme to build transport and energy projects. The program is a showcase for China’s Belt and Road Initiative, a push to build infrastructure in Asia, Europe and Africa,” the report said.
Pakistan, as it has in the past many times, would normally go to the International Monetary Fund (IMF) for a loan, but its debt to China may make that impossible.
U.S. Secretary of State Mike Pompeo warned last month, “There’s no rationale for IMF tax dollars” to “bail out Chinese bondholders or China itself.”
The U.S. and IMF “want Pakistan to reveal the secret terms of China’s loans before deciding how to proceed. Once those terms are revealed, the IMF will likely ask Islamabad to renegotiate some China projects and put others on hold. The Journal reported that one energy project guarantees Chinese investors a 34% annual return in U.S. dollars for 30 years,” the Wall Street Journal report said.
There is also concern that Pakistan could manage to get through its current predicament “only to fall into a debt trap in which it is forced to turn over strategic assets such as the Gwadar port to Chinese creditors,” the report said.
That happened to Sri Lanka, which couldn’t service $6 billion in Chinese loans used to build the Hambantota port. Last year Sri Lanka leased the port to China Merchant Ports Holding for 99 years in a deal to write down debt.
Some in Khan’s party want to forgo an IMF bailout and double down on Pakistan’s “all weather friendship” with China, the report said. After last month’s election, Beijing promised a $2 billion loan on top of the $5 billion it has sent Islamabad in the past year.
But, as Pakistan takes on more Chinese debt, “the chances of a future cash crunch will grow. The uncertainty will make it difficult for Khan to fulfill his campaign promises,” the report said.
The Journal noted that Malaysia recently suspended more than $20 billion in Chinese-funded projects after a change in government and suggested that Khan “would be wise to do the same.”