Islamabad: China has shown reluctance to clear a USD 6 billion loan for the single largest project under the China-Pakistan Economic Corridor (CPEC) due to the growing concern over mounting debt.
The cost of the Mainline-I (ML-I) railway project was initially USD 9 billion but later it was reduced gradually to USD 6.8 billion. According to a report in The Express Tribune, Chinese authorities are wary of Pakistan’s ability to service its debt.
“Beijing conveyed its concerns during a meeting held on March 30 to discuss financing modalities of the project,” the Pakistan government officials said as per the report.
“The Chinese side have sought clarification regarding the possibility of raising further debt by Pakistan during currency of the IMF program. The Pakistani side clarified that debt situation is being monitored and there is no restriction under the programme to raise debt for viable projects,” Deputy Chairman Planning Commission of Pakistan Dr Jehanzeb Khan told the Pakistan daily.
Amid lack of progress on several CPEC projects, subtle signs of unease have emerged between the two countries over the future direction and funding of mega projects, under increasing scrutiny of media and the public.
According to a report published in Modern Diplomacy, the outcome of recent meetings between the two countries reveals significant scaling down of Pakistan’s expectations regarding the inclusion of more projects under CPEC phase II.
Fabien Baussart in an opinion piece for Modern Diplomacy last month had said, “While the country has for long portrayed USD 6.8 billion Main Line-I project to be the main artery of the Pakistan Railways and tried to convince China for financing the project, the Chinese side has tried to avoid any commitment for funding.”
Pakistan has been unable to secure any favourable consideration including the concessionary loan at an interest rate of one per cent, said Baussart while adding that China is only willing to offer a mix of commercial and concessional loans to fund the rail project backed by suitable guarantees by Pakistan.
In 2015, China announced an economic project in Pakistan worth USD 46 billion. With the CPEC, Beijing aims to expand its influence in Pakistan and across Central and South Asia in order to counter the influence of the United States and India.
The CPEC would link Pakistan’s southern Gwadar port (626 kilometres west of Karachi) in Balochistan on the Arabian Sea to China’s western Xinjiang region. It also includes plans to create road, rail, and oil pipeline links to improve connectivity between China and the Middle East.