Pak-China Alliance: An Alternative Perspective

Pakistan's over reliance on China has a potential of harming its sovereignty

Pakistan is staring at all-round deterioration in its comprehensive national power and overall national health. Its economic indicators are at an all-time low, internal situation is highly disturbed barring the state of Punjab. It is rapidly losing friends externally, latest being Saudi Arabia and UAE. Xi (China) is having a free run in all affairs of Pakistan and virtually dictating terms to them. It may not be out of place to state that the very sovereignty of Pakistan is under existential threat.

Economically it is under severe stress. Its GDP has taken a dramatic dip from USD 315 billion in 2018 to USD 278 billion in 2019. Following the COVID 19 pandemic and a downswing in foreign remittances it is likely to drop further. The Public debt stands at 87% and external debt has risen to 38.7% of its dwindling GDP. Inflation stands at an all-time high of 12.7 %. The Pak Rupee has devalued by almost 40 % and stands at PKR 168 to a dollar. Foreign reserve has fallen to 10.2 billion USD. The US has been  constantly reducing its aid; from 2177 million USD in 2014 it has come down to 108 million USD in 2018. Till recently the aid in 2020 stands at just 70 million USD. It is a matter of serious concern for any country that has to go to the imf now for the 13th time seeking bailout package simply for debt servicing besides borrowing from china to pay back dues to Saudi Arabia. Its 37 billion dollar debt has to be serviced with the help of 6 billion dollar IMF aid. But till now only USD 1 billion was released, which was boosted in Apr 20 by another 1.4 billion dollar aid to manage the COVID crisis. The Chinese debt out of the total external debt of 37.359 billion is 14.652 billion primarily due to CPEC.

The impact of the economic burden has translated into higher tax collection, inflation and virtual takeover of the financial institution by IMF thorough its trusted Pakistani financial experts in various apex level government bodies. The traders have gone on strike, protesting against high taxation and expressing their inability to pay increased taxes. The other impact has been on its military preparedness. In the past the government was diverting large portion of aid packages to enhance its military capacities and capabilities.  Farooq Tariq maintains that the military establishment has had a role to play in the aggravation of the economy and despite the current situation recently sought a 20% pay hike to its forces. The Pakistan Tehreek-e-Insaf (PTI) isn’t the first party to seek the Army’s help in maintaining the vicious circle of debt for Pakistan. Even the US aid given regularly to Pakistan since 2002, a major portion gets diverted to fund development of Army capabilities. The import of US Aid can be understood from the fact that since 2002 to 2018, US has given 34 billion USD aid to Pakistan of which Pakistan military has used 8.3 billion dollars and 14.5 billion dollars has been given to reimburse the expenditure made on Collation Security Forces (CSF).

This has forced Pakistan to seek assistance from its all-weather friend China. Pakistan is seeking to first, bring down mark-up on debt to London Interbank Offer Rate plus two (Libor+2) per cent from the existing average of about Libor+4.5pc. Second, Pakistan has sought an extension in debt repayment period in the tariff to 20 years from the existing repayment period of 10 years. However, China will extract its pound of flesh by forcing Pakistan to award contracts to Chinese companies with a grant of loan which will enable China to enable its outfits to use the loan money while Pakistan foots the exorbitant interest rates unlike the IMF and World Bank which provide soft loans. Situation is rapidly reaching a point of no return from where Pakistan will have no choice but to be overwhelmed by external and internal debt. In such dire economic state Pakistan is destined to become a virtual vassal of China.

As if debt servicing was not enough of a trouble, Pakistan faces further distress from the Financial Action Task Force (FATF). It has extended the retention of Pakistan in the grey list during its online Jun 2020 meeting but still not absolved Pakistan from financing terror organisations and has extended the retention of Pakistan in grey list till its next meeting in October 2020. Pakistan and China had made a joint appeal to take off Pakistan from grey list but the US report on Pakistan slamming it for continuing to support the terror groups operating in Afghanistan and India from Pakistani soil convinced the members of FATF that Pakistan was doing an eyewash of curbing terror funding.