Pakistan's involvement in CPEC has led to impractical projects heavily reliant on foreign loans, worsening the country's economic difficulties
India instead concentrated on its own connectivity initiatives, such as the International North-South Transport Corridor and the Chabahar port in Iran, although it lacks a comprehensive strategy to enhance regional connectivity.From a geopolitical standpoint, India has been a vocal opponent of the BRI since its inception in 2013. India viewed one of the key components of the CPEC as a violation of its territorial integrity and sovereignty. Concerns included geopolitical ramifications in addition to India's claims on Pakistan-occupied Kashmir (PoK). The undertaking was viewed as a component of China's overarching plan to surround India and seize power in the area. Furthermore, it raised concerns about China gaining easy access to Pakistani ports and the potential establishment of a naval base in the region, raising major security concerns for India. India's approach of opposing the BRI and refraining from participating reduced its impact on the growth of regional infrastructure. India instead concentrated on its own connectivity initiatives, such as the International North-South Transport Corridor and the Chabahar port in Iran, although it lacks a comprehensive strategy to enhance regional connectivity. With the introduction of the CPEC project, the people of Pakistan initially got hope and relief from the country's persistent power and energy issues. Widespread blackouts due to crippling power shortages had paralysed economic activities and engulfed bustling market areas in darkness. The energy crisis stemmed from exorbitant energy rates charged by Independent Power Producers (IPPs), neglected power plants, deteriorating transmission lines, and years of populist government policies. For over three decades, citizens endured daily electricity outages lasting around 10 hours in urban areas and approximately 22 hours in rural regions. These power cuts disrupted revenue-generating markets, industries, educational institutions, healthcare facilities, and social activities. Figure 1: Division of CPEC Projects
The economic viability of CPEC projects, coupled with Pakistan's ongoing financial distress and the country's efforts in the war on terror, further complicated the situation.The foundation of CPEC, which heavily relies on Chinese equity holdings in Pakistan's infrastructure projects, has made Pakistan liable for 80 percent of the investments related to the corridor. This has led to concerns that the former flagship initiative of BRI is flawed and a costly policy misstep for China. China has repeatedly refused to defer or restructure pending debt repayments, fearing that it would set a precedent for other debtors and result in a collapse of bad loans. However, it is in China's interest to assist Pakistan in maintaining its image as a reliable ally to the developing world. Given these circumstances, it is essential for economies in the region, particularly BRI countries like Pakistan, to carefully monitor and manage the share of China's debt in their total external debt. Pakistan's involvement in CPEC has led to impractical projects heavily reliant on foreign loans, worsening the country's economic difficulties. Surging deficits in the trade balance and low levels of foreign direct investment (FDI) have been caused by the heavy reliance on external borrowing without addressing fundamental macroeconomic difficulties. Therefore, Pakistan needs to emphasise credit diversification and restructuring of its foreign debt to get a grip on its external sector and deal with the troubling contemporary macroeconomic issues. (Note – For a more detailed analysis, please see ORF Occasional Paper No. 403 “Debt ad Infinitum: Pakistan’s Macroeconomic Catastrophe”)
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Soumya Bhowmick is an Associate Fellow at the Centre for New Economic Diplomacy at the Observer Research Foundation. His research focuses on sustainable development and ...Read More +