Seeking to maintain equilibrium in a relationship that strongly affects Asian security, Chinese President Xi Jinping assured new Pakistani Prime Minister Imran Khan on Friday that China considers its neighbor a “diplomatic priority.”
Pakistan’s growing fiscal crisis has raised questions about its ability to repay Chinese loans granted as part of Xi’s “Belt and Road” infrastructure initiative.
Pakistan has taken out billions of dollars in loans from China in recent years for infrastructure projects, the terms of which remain largely undisclosed. China has pledged a total of more than $60 billion to Pakistan in the form of loans and investments for roads, ports, power plants and industrial parks.
In response to the debt crisis, Pakistan is seeking an emergency bailout loan of $8 billion from the International Monetary Fund, which plans to send a team to Pakistan to assess the situation. It is also seeking new loans from Saudi Arabia and China. Discussions of the new funding were expected to dominate Khan’s visit.
Further complicating matters, the United States, which strongly influences the IMF, has said it will not finance the repayment of Pakistan’s Chinese loans.
Pakistan’s government has “inherited a very difficult economic situation,” Khan told Xi. “Unfortunately our country is going through a low point at the moment with two very big deficits, a fiscal deficit and a current account deficit.”
Xi sought to dispel concerns in his opening remarks, referring to the decades of warm ties between the two countries.
“China has always placed Pakistan as a diplomatic priority for China, supported Pakistan’s safeguarding of national independence, sovereignty, and territorial integrity, and supported the new Pakistani government’s smooth running of the government and advancement of national construction,” Xi said.
Fiscal pressure reuniting allies
Khan is scheduled to meet with Chinese Premier Li Keqiang on Saturday, after which the two leaders will oversee the signing of a series of agreements, possibly including new loans.
China and Pakistan refer to themselves as “all-weather friends,” united in their rivalry against mutual neighbor India and entwined in a web of military, political and economic links. Pakistan has been among the most enthusiastic supporters of the trillion-dollar Belt and Road initiative, which seeks to re-establish China’s former role as the Asian center of global trade by binding it to Europe, African, Southeast Asia and elsewhere through Chinese-financed projects.
However, the fiscal crisis has put Khan’s administration under early pressure, sparking public anger over the rising prices of basic goods. Khan had initially vowed to curb borrowing, but has proceeded with projects such as one to build 5 million public housing units and has predicted that Pakistan would soon overcome its economic woes.
As an opposition politician, the former cricket star had questioned whether the partnership with China benefited Pakistan and promised the contracts would be made public.
While that has yet to happen, the two sides have begun reassessing some aspects of the Pakistan section of Belt and Road, known as the China-Pakistan Economic Corridor, including scaling back the development of Pakistan’s Arabian Sea port of Gwadar. Agreements with Chinese power companies to supply much-needed electricity to energy-starved Pakistan have also been loudly criticized over the revolving debt costs to Pakistan.
Other countries, including Malaysia, have also pulled back on Chinese-funded projects related to the Belt and Road initiative, and much concern has been raised over the case of Sri Lanka. That Indian Ocean island nation’s government borrowed billions from China to build a port and airport, but when it was unable to make payments, signed an agreement giving a Chinese company an 80 percent stake and a 99-year lease on the failing port.
Since taking office, Khan has softened his criticisms of the Chinese-backed projects and Finance Minister Asad Umar has said a review of contracts signed by the previous government has so far turned up no irregularities.
Pakistan has said the project isn’t a major contributor to the country’s’ debt or a cause of the “financial difficulties it faces currently faces,” Lu said, adding that discussions will focus on “how to better drive forward with the building of the project.”