Debt of 10,40,000 crore rupees on Pakistan, one third of which lent by China alone

• Pakistan has fallen victim to a debt trap orchestrated by China
• China lent to Pakistan at an interest rate more than 3 times the international standards

Islamabad (Pakistan) – Economically beleaguered, Pakistan finds itself ensnared in the deceptive manipulations of its proclaimed ‘best friend,’ China. While the Pakistani populace grapples with starvation, the authorities are full of corruption. Consequently, global financial institutions such as the International Monetary Fund and the World Bank remain reticent in extending loans to Pakistan. The nation’s poor credit rating, elevated credit risk, and fragile financial standing are cited as contributing factors. Compounding the issue is the ‘China-Pakistan Economic Corridor’ (CPEC) agreement, further plunging Pakistan into a profound economic abyss.

Statistics showing the dire state of debt-ridden Pakistan

As of 2023, Pakistan finds itself grappling with a staggering debt nearing almost 125 billion USD (exceeding 10,40,000 crore rupees), one-third of which is attributable to loans from China alone. The spotlight is once again on China’s renowned ‘Debt-trap diplomacy’.

The total cost of the China-Pakistan Economic Corridor (CPEC) surpasses 25 billion USD (over 2,08,000 crore rupees), burdening Pakistan with substantial repayments to Chinese financial institutions.

A noteworthy aspect is that while global financial institutions typically extend loans to countries at an interest rate of around 2%, Chinese banks impose an interest rate exceeding 7%. This exorbitant rate has rendered it nearly impossible for Islamabad to meet its debt obligations. Pakistan not only struggles with repaying the principal amount but is also unable to cover the accruing interest, underscoring the dire financial predicament.

Compounded by this predicament, Pakistan finds itself compelled to secure new loans from China to service existing debts, a trend that has persisted since 2017. As of 8th November, Pakistan sought a loan of 600 million USD (approximately 5,000 crore rupees) from the ‘Pakistan Industrial and Commercial Bank of China’.

In summary, Pakistan’s financial woes have been exacerbated by the imposition of high-interest loans from China.

What is China’s ‘Debt-trap diplomacy’ ?

China is consistently criticised for implementing unique debt policies in various Asian and African countries as part of its emerging colonial ambitions. The ‘CPEC’ agreement with Pakistan is one such example. China commences the utilization of the resources of nations ensnared by its debt. Prime examples of this are India’s neighbours, Pakistan and Sri Lanka. Sri Lanka, grappling with the burden of Chinese debt, had to cede its Hambantota port to China under a 99-year contract.

Editorial Perspective

The imposition of economic sanctions should be directed towards China, rather than Russia, to deter its self-centred actions. India should now seek to isolate China by exerting pressure on Western countries such as the United States and Britain.