4 September 2018
US senators say Pakistan at risk of debt distress due to CPEC, express concern about China’s ‘debt-trap’ diplomacy
Washington: As newly elected government in Pakistan, headed by Prime Minister Imran Khan, is willing to pursue an International Monetary Fund (IMF) bailout, a group of United States (US) senators have asserted that Islamabad is at risk of debt distress due to rising current-account deficit and external debt obligations caused by the China Pakistan Economic Corridor (CPEC).
David Perdue, Patrick Leahy and 14 other US senators have written to the secretary of state Michael Pompeo and secretary of treasury Steven Mnuchin while expressing concern over bailout request by countries that fall in China’s debt trap. “This financial crisis illustrates the dangers of China’s debt-trap diplomacy and its Belt and Road Initiative (BRI) to developing countries, as well as the national security threat they pose to the United States,” said the senators in their letter.
The Centre for Global Development has estimated that of the 68 countries currently hosting BRI-funded projects, 23 countries are at risk of debt distress, and in eight of those countries, future BRI-related financing raises serious concerns about sovereign debt sustainability.
“It is also found that Chinese behaviour as a creditor has not been subject to the disciplines and standards that other major sovereigns and other multilateral creditors have adopted collectively, and in the process, debt levels and dependence on China are rising,” said the senators by citing an example of Sri Lanka, which was promised a bailout of $1.5 billion by the International Monetary Fund (IMF) in 2016.
As financially strapped countries negotiate with China to free themselves of mounting debt, Beijing has extracted onerous concessions, including equity in strategically important assets. Further, Beijing has reportedly used economic pressure to affect foreign policy decisions.
“As Djibouti increases its dependence on China, there are fears that China will gain control of the Doraleh Container Terminal, further consolidating China’s influence in the critically strategic region,” the letter added.
There are concerns that given Pakistan’s growing Chinese debt, the same could happen at Gwadar Port in Pakistan.
The US senators, who have also addressed their letter to defence secretary James Mattis wrote, “In China’s String of Pearls strategy for the Indo-Pacific, Gwadar and Hambantota are important footholds that if converted into naval bases will enable the PLA Navy to maintain a permanent presence in the Indian Ocean.”