Pakistan is stuck in a debt trap, becoming heavily dependent on China for relief, according to sources close to the Pakistan Muslim League (N) (PML-N) government.
Sources said the Independent Power Producers (IPP) companies under the China-Pakistan Economic Corridor (CPEC) is classic example of the debt trap. “To extract political and economic concessions, China has given excessive credit to Pakistan. When it becomes difficult to repay, they start seeking concessions which are against the sovereign government’s interests. Most important is that the conditions of the loans are not publicized so that public is not aware,” sources said.
The borrowed money commonly pays for contractors and materials, who are also sourced from the creditor country, which means the money goes back to the country that paid you loan, sources said.
“The CPEC is highly over-invoiced. With a promised minimum of 17 per cent dollarized profits, the world’s most expensive electricity is delivered to Pakistani people and industries,” they said.
Another crisis is the country is losing its grip on security due to the economic condition.
“Capacity payments and 3.5 percent plus London Interbank Offered Rate (LIBOR) loan terms have turned Pakistan’s debt burden into a full-fledged national security crisis,” sources said, adding, “Pakistan is giving police posts, and are forced to give telecom projects to China and forced to buy weapons and fighter planes.”
According to PMLN sources, they have always maintained that viability of CPEC is under scanner. “We feel these can’t be developed as Special Economic Zone. Dollarised return is impossible because Pakistan rupee is devalued in a big way,” sources said.
Transfer pricing of China is also under the scanner as no Chinese company is running and keeping its operations in Pakistan. Even their operations are never verified to see whether the cost is incurred or not, sources said. “These are all bonds and not an FDI, so even after repayments and restructuring, no one can pay them back. The Chinese ambassador was called to the MOFA and was asked to give concessions on repayment and LIBOR charges but it was a cold response,” sources said.
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