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On the edge of a debt trap, is Pakistan finally realising the folly of CPEC?

Pakistan Prime Minister Imran Khan

As Pakistan Prime Minister Imran Khan faces stiff opposition at home over rising debt level on one hand and falling GDP growth and employment on the other, focus could finally be shifting towards resetting the woeful economic situation.

While Khan has repeatedly underlined the importance of the ongoing mega infrastructure project under the China Pakistan Economic Corridor (CPEC) in boosting the country’s economy, it has started to backfire with debts rising to alarming level.

Under the Khan administration, the country is gradually slipping into a debt trap. The debt to GDP ratio has soared to over 107 per cent prompting many economists to believe that the current problem has arisen due to the reckless execution of the CPEC, which has been undertaken without proper planning and is laced with high level corruption.

Debt to GDP ratio is a barometer of measuring the country's repayment capacity in relation to its economic output.

Though Beijing has denied that Pakistan’s rise in dent is due to the CPEC, it has slowed down financing towards CPEC, something that has caused embarrassment for Khan.

“The project is ad-hoc, lacks transparency and is creating problems like never-before. There has been absolutely no planning,” an analyst said.

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A Gateway House research pointed out that “a combination of overcapacity, high upfront costs, high interest rates and poor fuel choices, means that Pakistan is saddled with expensive electricity running on imported fuel. This is one of the factors contributing to Pakistan’s current economic problems.”

It added that though the CPEC was aimed at boosting connectivity, “the bulk of its investments are directed at power generation, not roads and rail.”

The Thomson Reuters Foundation News in a report noted that “after suffering decades of electricity shortages that left families and businesses in the dark, Pakistan finds itself with a new problem: more electrical generating capacity than it needs.” This has led to an increase in tariff but that is not all. Despite producing surplus power, lakhs of people continue to live without power.

Pakistan could finally be turning its focus on fixing its economy

In a surprise development, India and Pakistan have decided to adhere to the agreements of ceasefire along the Line of Control. The two countries had inked a ceasefire agreement in 2003. However, the agreement has never been followed in the last few years. “This is an indication that Islamabad could finally be toning down its stance on Kashmir and focus on economy, which is turning to be a major challenge,” Shakti Sinha, former bureaucrat and director of Atal Bihari Vajpayee Institute of Policy Research and International Studies, MS University told IndiaNarrative.com.

Former Indian envoy to Pakistan, TCA Raghavan noted that India-Pakistan relations have never remained “stationary for very long.” “Bilateral relations between the two countries are always changing, so it is no surprise that it has once again taken a turn. The decision of ceasefire along the LoC is an important move. Both countries realise the fruitlessness of tactical firefights along LoC,” Raghavan said, adding that the development will not impact Pakistan’s relations with China.

Echoing the same sentiment, Sinha said that China’s focus on Pakistan will continue to remain strong as Beijing would want to balance India’s role in the geopolitical region.

“India and US ties have been deepening, besides the QUAD has also been gaining strength as New Delhi’s relations with Pakistan and China go southward. With the Kashmir issue softening, Beijing would hope that these issues would be balanced,” Sinha said.

An article in Pakistan based Dawn highlighted that Bangladesh, which tuned out to be a poor cousin of Pakistan after the bitter 1971 war has emerged as a strong economy in the last five decades. Bangladesh Prime Minister Sheikh Hasina, the article noted that, has successfully steered the country away from extremism and radicalism.

“Bangladesh sees its future in human development and economic growth. Goal posts are set at increasing exports, reducing unemployment, improving health, reducing dependence upon loans and aid, and further extending micro credit,” an article carried by the Pakistan based Dawn said in 2019. “For Pakistan, human development comes a distant second. The bulk of national energies remain focused upon check-mating India. Relations with Afghanistan and Iran are therefore troubled; Pakistan accuses both of being excessively close to India,” the article added.