China’s lack of transparency will negatively impact Pakistan’s economic growth warned Alice Wells, acting assistant secretary of state for South and Central Asian affairs, Speaking of the China-Pakistan Economic Corridor (CPEC), and warned it would eventually worsen Islamabad's economic troubles and only benefit Beijing.
“It’s clear, or it needs to be clear, that CPEC is not about aid,” Wells said to an audience at the Woodrow Wilson International Centre, a Washington D.C., based think tank, on Thursday.
The corridor “is going to take a growing toll on the Pakistan economy, especially when the bulk of payments start to come due in the next four to six years,” she said.
Wells said although, “China offers substantial financing, usually as loans. But Beijing is not a member of the Paris Club, and has never supported globally-recognized, transparent lending practices.”
China’s loans to countries often obscured in secrecy are thought to be higher than official figures released, resulting in huge“hidden debt.” China has been heavily criticized for burdening many countries with huge debt through its Belt and Road Initiative -- a behemoth infrastructure project to build sea, rail, road and other routes from China to Central Asia, Africa and Europe.
Wells emphasised that China provides loans, not grants, unlike foreign assistance provided by the United States. Since world War 2 the U.S., foreign assistance model has been to facilitate economic growth, international economic order and promote stable democratic governments.
Although Wells acknowledged the U.S could not make offers from state-run companies, Wells said private US investment, coupled with US grants, would improve the troubled economy’s fundamentals. “There is a different model,” she said. “Worldwide we see that US companies bring more than just capital; they bring values, processes and expertise that build the capacities of local economies.” She pointed to interest in Pakistan by US companies including Uber, Exxon Mobil, PepsiCo and Coca-Cola, with the soft-drink makers together investing $1.3 billion in the country.
Wells added, the lack of transparency hides the risk to borrowing countries since Chinese companies who undertake One Belt One Road projects have an incentive to inflate costs and encourage corruption. Moreover, she highlighted, failure to repay the loans would result in: ceasing of further infrastructure development, the surrender of strategic assets and diminish sovereignty. Thus, resulting in an even heavier debt burden for Pakistan.
She warned CPEC was not an aid but a form of Chinese self-interest financing that will only benefit Chinese state-owned enterprises and not Pakistan.
Wells said, “China does not publish, or even report, overall figures on its official lending.” Therefore, rating agencies including the Paris Club or IMF are unable to monitor those financial transactions or the scale of China’s debt.
She highlighted a recent Pakistani example. “CPEC’s most expensive single project is upgrading the railway from Karachi to Peshawar. When the project was initially announced, the price was set at $8.2 billion,” she said.
“In October of 2018, Pakistan’s railways minister announced that they had negotiated the price down to $6.2 billion, a saving of two billion. And he explained Pakistan is a poor country. We cannot afford this huge burden of these loans.”
“But recent media reports claim the price is now risen to $9 billion,” she added. “So, why doesn’t the Pakistani public know the price for CPEC’s most expensive project or how it’s being determined?
Both the IMF and World Bank have called for more transparency on China’s loan amounts and terms in their annual spring meetings in April this year.
Wells described how vulnerable countries including Sri Lanka, and Maldives were enticed in becoming become part of the BRI but are now suffering the consequences. “The vision is attractive for governments facing enormous development challenges and infrastructure needs.” She said.
Struggling to repay it debt to Chinese firms, Sri Lanka handed over the strategic port of Hambantota to China on a 99-year lease in a deal that critics said threatens the country’s sovereignty
Wells stressed the obscure multi-billion-dollar CPEC project will “take a toll on Pakistan’s economy at the time of the repayment of the debt.” And even if Pakistan’s loan repayments are deferred they will impede Pakistan’s development potential, she said and “hamstringing Prime Minister Khan’s reform agenda.”
“It’s clear, or it needs to be clear, that CPEC is not about aid,” Wells said to an audience at the Woodrow Wilson International Centre, a Washington D.C., based think tank, on Thursday.
The corridor “is going to take a growing toll on the Pakistan economy, especially when the bulk of payments start to come due in the next four to six years,” she said.
Wells said although, “China offers substantial financing, usually as loans. But Beijing is not a member of the Paris Club, and has never supported globally-recognized, transparent lending practices.”
China’s loans to countries often obscured in secrecy are thought to be higher than official figures released, resulting in huge“hidden debt.” China has been heavily criticized for burdening many countries with huge debt through its Belt and Road Initiative -- a behemoth infrastructure project to build sea, rail, road and other routes from China to Central Asia, Africa and Europe.
Wells emphasised that China provides loans, not grants, unlike foreign assistance provided by the United States. Since world War 2 the U.S., foreign assistance model has been to facilitate economic growth, international economic order and promote stable democratic governments.
Although Wells acknowledged the U.S could not make offers from state-run companies, Wells said private US investment, coupled with US grants, would improve the troubled economy’s fundamentals. “There is a different model,” she said. “Worldwide we see that US companies bring more than just capital; they bring values, processes and expertise that build the capacities of local economies.” She pointed to interest in Pakistan by US companies including Uber, Exxon Mobil, PepsiCo and Coca-Cola, with the soft-drink makers together investing $1.3 billion in the country.
Wells added, the lack of transparency hides the risk to borrowing countries since Chinese companies who undertake One Belt One Road projects have an incentive to inflate costs and encourage corruption. Moreover, she highlighted, failure to repay the loans would result in: ceasing of further infrastructure development, the surrender of strategic assets and diminish sovereignty. Thus, resulting in an even heavier debt burden for Pakistan.
She warned CPEC was not an aid but a form of Chinese self-interest financing that will only benefit Chinese state-owned enterprises and not Pakistan.
Wells said, “China does not publish, or even report, overall figures on its official lending.” Therefore, rating agencies including the Paris Club or IMF are unable to monitor those financial transactions or the scale of China’s debt.
She highlighted a recent Pakistani example. “CPEC’s most expensive single project is upgrading the railway from Karachi to Peshawar. When the project was initially announced, the price was set at $8.2 billion,” she said.
“In October of 2018, Pakistan’s railways minister announced that they had negotiated the price down to $6.2 billion, a saving of two billion. And he explained Pakistan is a poor country. We cannot afford this huge burden of these loans.”
“But recent media reports claim the price is now risen to $9 billion,” she added. “So, why doesn’t the Pakistani public know the price for CPEC’s most expensive project or how it’s being determined?
Both the IMF and World Bank have called for more transparency on China’s loan amounts and terms in their annual spring meetings in April this year.
Wells described how vulnerable countries including Sri Lanka, and Maldives were enticed in becoming become part of the BRI but are now suffering the consequences. “The vision is attractive for governments facing enormous development challenges and infrastructure needs.” She said.
Struggling to repay it debt to Chinese firms, Sri Lanka handed over the strategic port of Hambantota to China on a 99-year lease in a deal that critics said threatens the country’s sovereignty
Wells stressed the obscure multi-billion-dollar CPEC project will “take a toll on Pakistan’s economy at the time of the repayment of the debt.” And even if Pakistan’s loan repayments are deferred they will impede Pakistan’s development potential, she said and “hamstringing Prime Minister Khan’s reform agenda.”