China-Pakistan Economic Corridor (CPEC) was launched in April 2015 and highlighted as a game-changing development project for Pakistan. It is expected that the CPEC projects will increase the Gross Domestic Product of Pakistan by more than 2.5% annually.
Pakistan has long been synonymous with energy shortages and long power outages. However, energy projects under CPEC are planned to cover Pakistan’s energy needs and also generate extra for export.
Pakistan is facing increasing challenges of poverty and unemployment. However, through CPEC projects, the country is expected to add 2.3 million jobs to its economy by 2030, putting Pakistan on the path of growth and social empowerment. However, six years down the line, the CPEC is largely running behind schedule. Out of the 15 CPEC projects that are facing completion deadlines now, only three have been completed.
Recently, CPEC is developing into a massive debt burden for Pakistan as development funds from China are not coming for new and ongoing projects. Non-payment of around PKR 300 billion ($1.59 billion) to the Chinese companies already operational under CPEC has become a bitter point (News18, 2022). In such a situation, running the economy and paying debt instalments annually is becoming distressing for the government.
Chinese loans in the initial stages led to a steady development of projects. On an overall corridor progress basis, Khalid Mansoor, special assistant to the Prime Minister on CPEC affairs, informed in September 2021 that 21 projects worth $15.2 billion were completed and another 21 worth around $9.3 billion, under operation. However, due to the current economic crisis, Pakistan cannot support ongoing and future CPEC projects for at least two years.
Pakistan has a massive $130 billion in foreign debt and the country needs $14 billion a year as annual debt instalment (principal + interest). According to the State Bank of Pakistan, the country has to pay $1.653 billion in the first quarter (Q1) of FY2022 (principal + interest), $4.357 billion in Q2, and $4.875 billion in FY2022 Q3. Furthermore, its foreign exchange reserves are down by over 60%, from $20 billion in August 2021 to $7.5 billion now.
In such a situation, a country needs foreign loans to meet its international debt obligations and import needs. However, in the case of Pakistan, it will cause more addition to the $130 billion pressure, making Pakistan financially incapable to participate in the CPEC projects due to the given political instability and current debt burden on the country.
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