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How Pakistan fell into China’s debt trap


New Delhi, Oct 3: On Monday, Pakistan's Railways Minister, Sheikh Rasheed said that the country had cut the size of the biggest Chinese Silk Road project by 2 billion US dollars. He cited the country's debt levels while making this statement. "Pakistan is a poor country that cannot afford huge burden of the loans," Rasheed told a news conference in the city of Lahore.

China has become the biggest lender for Pakistan and it clear from the minister's statements that they fear a debt trap. Pakistan, by 2024 will have to pay back to China 100 billion US dollars of the total investment of 18.5 billion USD which has been invested on account of bank loans in 19 early harvest projects under the CPEC.

How Pakistan fell into China’s debt trap

Pakistan owes 19 billion USD to China. The CPEC loans add 14 billion USD to Pakistan's total debt, raising it to 90 billion USD by 2019 says a report in the Committee for the Abolition of Illegitimate Debt.

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China has become the biggest lender for Pakistan. While the CPEC is aimed at transforming the Pakistan economy, the fact of the matter is that it would come at a very heavy price. It would in the long run go on to make Pakistan a colony of China. It is in this context that Pakistan decided to cut the Silk Road project as the loans from China are piling up.

Piling debt:

The figures by the State Bank of Pakistan show that China's bi-lateral debt to Pakistan stood at 7.2 billion USD by June 2017 and this increased by over 3 billion USD in four years. Moreover the currency swaps in Pakistan stood at 1.5 billion USD, which in turn took the figures to 8.7 billion USD.

The Industrial and Commerce Bank of China, Pakistan branch secured a loan of 2.7 billion USD from its parent firm and later swapped it with the Pakistan rupee and this took the debt up to 12.1 billion USD.

Also Read | New Pakistan government equally keen to work with China; CPEC a non issue

A report in the www.cadtm.org says that in addition to this, Pakistan's debt liabilities to direct investors from China stood at around 3.5 billion USD and the biggest investment in the last few years is from China mobile adding to the total amount of 17.1 billion USD. Pakistan's debt liabilities have risen from 83 billion USD to 88.9 billion USD until December 2017 and the amount has grown further after that.

The report while citing experts says that Pakistan will have to pay back 100 billion USD by 2024 of the total investment of 18.5 billion USD, which China had invested on account of banks loans in 19 early harvest projects most of them relating to the energy sector under CPEC. The interest on these loans will be around 7 per cent per annum payable in 25 to 40 years and this would mean Pakistan would be paying China around 8 billion USD per month starting 2018 for the next 43 years, the report further notes.

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