Pakistan rethinks Chinese Silk Road projects

REUTERS
ISLAMABAD
Published 02.10.2018 00:00
The new government of populist Prime Minister Imran Khan has voiced alarm about rising debt levels and says the country must wean itself off foreign loans.
The new government of populist Prime Minister Imran Khan has voiced alarm about rising debt levels and says the country must wean itself off foreign loans.

After lengthy delays, an $8.2 billion revamp of a colonial-era rail line snaking from the Arabian Sea to the foothills of the Hindu Kush has become a test of Pakistan's ability to rethink signature Chinese "Silk Road" projects due to debt concerns. The rail megaproject linking the coastal metropolis of Karachi to the northwestern city of Peshawar is China's biggest Belt and Road Initiative (BRI) project in Pakistan, but Islamabad has balked at the cost and financing terms. Resistance has stiffened under the new government of populist Prime Minister Imran Khan, who has voiced alarm about rising debt levels and says the country must wean itself off foreign loans.

"We are seeing how to develop a model so the government of Pakistan wouldn't have all the risk," Khusro Bakhtyar, minister in Pakistan's planning ministry, told reporters recently.

Pakistan's new government had wanted to review all BRI contracts. Officials say there are concerns the deals were badly negotiated, too expensive or overly favoured China. But to Islamabad's frustration, Beijing is only willing to review projects that have not yet begun, three senior government officials have told Reuters.

Pakistani officials say they remain committed to Chinese investment but want to push harder on price and affordability, while re-orientating the China-Pakistan Economic Corridor (CPEC) - for which Beijing has pledged about $60 billion in infrastructure funds - to focus on projects that deliver social development in line with Khan's election platform. China's Ambassador to Pakistan, Yao Jing, told Reuters that Beijing was open to changes proposed by the new government and "we will definitely follow their agenda" to work out a roadmap for BRI projects based on "mutual consultation".

Beijing would only proceed with projects that Pakistan wanted, he added. "This is Pakistan's economy, this is their society," Yao said. Islamabad's efforts to recalibrate CPEC are made trickier by its dependence on Chinese loans to prop up its vulnerable economy.

Growing fissures in relations with Pakistan's historic ally the United States have also weakened the country's negotiating hand, as has a current account crisis likely to lead to a bailout by the International Monetary Fund, which may demand spending cuts.

"We have reservations, but no other country is investing in Pakistan. What can we do?" one Pakistani minister told Reuters.

The ML-1 rail line is the spine of country's dilapidated rail network, which has in recent years been edging towards collapse as passenger numbers plunge, train lines close and the vital freight business nosedives. Khan's government has vowed to make the 1,872 km (1,163 mile) line a priority CPEC project, saying it will help the poor travel across the vast South Asian nation. But Islamabad is exploring funding options for CPEC projects that depart from the traditional BRI lending model - whereby host nations take on Chinese debt to finance construction of infrastructure - and has invited Saudi Arabia and other countries to invest.

Rail mega-projects under China's BRI umbrella have run into problems elsewhere in Asia. A line linking Thailand and Laos has been beset by delays over financing, while Malaysia's new Prime Minister Mahathir Mohamad outright cancelled the Chinese-funded $20 billion East Coast Rail Link (ECRL).

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