Pakistan’s forever economic crisis is a grave issue now, despite its ‘all-weather friendship’ with China. The recent scenario of how the country got into fresh trouble of economic crisis – that of electricity – in order to save itself from the prevailing ones, is significant in understanding possible changes in South Asian geopolitics. 

The heat of the trade war between the US and China is burning the latter’s economy every other day, creating multiple fears as China has investments all over the globe. CNBC reports that last Saturday (7th December 2019), China’s foreign exchange reserves of November fell unexpectedly by US$ 9 billion. China’s economic growth has also slowed down to 6.0%. The scenario of uncertainty in China’s economy has compelled contemplation of the existing or impending crises in regions in which China has invested in, and their further geo-economics as well. 

The popular China-Pakistan Economic Corridor (CPEC) has led to more investment in the energy sector of Pakistan. The total CPEC portfolio is worth US$ 49.6 billion, of which US$ 34.4 billion or 70% is committed to the power sector alone. The 1.32GW China Power Hub Generation Company (CPHGC) project has been claimed to be the largest coal yard of CPEC, is located not in China, but in Pakistan’s Balochistan province.

In order to embrace Chinese investment completely, Pakistan has put many other projects on hold, creating an imbalance in its economy. As a security analyst has suggested, Pakistan has lost its geopolitical equilibrium, and its slow pace and inactions have discouraged the private sector from investing in the special economic zone (SEZ). 

Pakistan had been facing an electricity crisis for a while now. ‘Big brother’ China invested a large proportion of its funds in fixing Pakistan’s power plants, thus appeasing Pakistani people, and creating basic infrastructure for further development and profitability of the CPEC. However, it turned out to be a shambolic process. 

A combination of overcapacity, high upfront costs, high-interest rates and poor fuel choices has burdened Pakistan with expensive electricity running on imported fuel, pushing the country into an economic crisis worse than before.

A total of six large thermal power plants are installed in Pakistan, out of which, China has invested in three – around US$ 5 billion under the CPEC. These plants account for almost 20% of Pakistan’s installed energy base; however, new additions in the plants are proving to be homicidal for Pakistan’s crawling economic growth. Since December 2017, Pakistani currency has fallen drastically against the US dollar (by almost 33%) which, in turn, has impacted the hike in electricity prices. Repeated hikes have marred the economy further, silently stating that the Chinese plants hold excess capacity which Pakistan might not be able to use. 

Gateway House (a Mumbai-based think tank) has analysed the statistics of the issue very precisely where Amit Bhandari, a senior fellow, states that “The terms on which these projects have been constructed make the problem worse.” Chinese loans carry much higher interest rates, even if compared with the multilateral institutions like Asian Development Bank. In India, the cost of similar projects is around 30% lower than their Pakistani counterparts, because, as per Mr Bhandari, unlike Indian projects, CPEC projects have been initiated without any international competition. 

As per speculations, Chinese loans have already created a debt-trap for Pakistan. In such a case, repayment would certainly be a problem. Such a menace is a warning for India’s neighbouring countries such as Sri Lanka and Nepal, who are ‘friends’ with China. Sri Lanka has already learnt the hard way; the Hambantota port stands leased out to China for 99 years. 

Furthermore, Pakistan is also losing its relationship balance in the Middle East. Saudi Arabia’s pledge of support for the refinery and petrochemicals complex in Gwadar has irked Iran and the Baloch, the local community of Pakistan’s Balochistan province where Gwadar port, a key and final element of the CPEC, is located. The Baloch already look at Gwadar as a potential proxy-war factor between Saudi Arabia and Iran in the coastal region. It is even speculated that this would bring back American influence in Pakistan due to the common strategic objectives of the Saudis and Americans against Iran. 

American pressure has pushed Pakistan into taking decisions such as initiating peace talks with the Taliban, but so far, there is no significant benefit that the country has achieved apart from an IMF bailout package. However, now that various reports and analyses show negative impacts of the CPEC project on Pakistan’s economy, it is quite possible that Pakistan would have to look up again to the West (i.e. the US) if the economy is to recover. Americans are eagerly looking for opportunities to regain their influence in the region as China’s aggressive expansion is impacting their economy and balance here. We also cannot neglect the fact that US military influence in the Indo-Pacific region is also at stake. After rejecting aids to Pakistan and turning its back on the Kashmir issue, the US might adopt a Middle Eastern channel. 

At this juncture, Pakistan is in debt, and dealing with India for electricity would be the most efficient way. In other words, it might be more beneficial for Pakistan to look for India’s assistance for cheaper fuel, as suggested by the Gateway House article as well. Pakistan could do with avoiding its rivalry with India here; its economic imbalance is anyway going to shuffle the geopolitics of the region if the US starts guiding Pakistan’s economic policies through Saudis extricating the country from the dragon’s debts. 

Pakistan should instead chase a beneficial deal considering China’s slowing economy and debt-trap strategy. For India, the time is ripe to increase its influence in the so-called ‘enemy’ region through lucrative deals, especially if it is looking to counter China’s aggressive expansion before it is too late. Apart from countering Chinese expansion, India also needs to start acting like the big player in its neighbourhood. Exerting cheaper / lucrative electricity deals for Pakistan at a time of the latter’s crisis would not only be a good use of India’s soft power but would also have the potential to calm down border issues.

(This post first appeared here in The Tilak Chronicle.)

Sugandh Priya Ojha

Sugandh Priya Ojha is the co-founder of a political consultancy startup. She is also an IR professional and a polyglot with interest and experience in Political Analysis, Culture, International Security and Climate Governance.


The views and opinions expressed in the above article belong to the author(s) and do not necessarily represent the official opinion, policy or position of Lokmaanya.


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