Recently, Pakistan’s debt problem has caught the attention of Western media. According to The Wall Street Journal, Pakistan’s ongoing US$2 billion air-conditioned metro project that runs through Lahore, the capital of Pakistan’s Punjab province, the first Belt and Road Initiative (BRI) project to be completed in Pakistan and has been under construction for three years, has led to high debt of Pakistan. Some Pakistani officials said that the project requires public subsidies to continue to operate.
The Wall Street Journal quoted senior officials saying that in this US$62 billion China-Pakistan infrastructure project, “Pakistani authorities have fallen behind on payments for electricity from new Chinese power projects”, and that “[t]he problems are expected to come to a head by early fall, when Pakistan’s new government is likely to seek a bailout from the International Monetary Fund (IMF)”. “You’re then effectively having the West bail out this country,” the report quoted Andrew Small, a German Marshall Fund expert on China-Pakistan relations, “If this is where Pakistan ends up financially, I think that’s going to be a big kind of black mark against the entire Belt and Road” as China has always regarded the China-Pakistan Economic Corridor (CPEC) as a benchmark project in the BRI.
This is not the first time for the Western media to report about Pakistan’s debt problem. Anbound’s research team follow-up study shows that in April this year, the Financial Times reported that Pakistan is attempting to prevent a foreign exchange crisis and will raise huge amounts of U.S. dollars from Pakistani expatriates and wealthy Chinese investors. In April this year, Pakistan’s foreign exchange reserves fell to about US$11.4 billion, equivalent to about 10 weeks of imports. Anbound’s follow-up study also noted that the Center for Global Development in Washington had issued a report in March this year that eight participating countries of the BRI might be facing difficulties in repaying debts due to large borrowing from China; these countries include Pakistan, Djibouti, Maldives and Laos. The study also stated that 23 countries have the risk of being in debt due to borrowing. The IMF's president, Christine Lagarde, who was visiting China at the time, euphemistically reminded China that in the countries where public debt is already high, it would be critical to properly handle financing terms.
Pakistan is a supporting pillar in China’s BRI, and CPEC is its model project. If there is a debt crisis in Pakistan, it will have a negative impact on the domestic economy and the BRI. At the same time, this will also provide the Western media a focus story. China cannot underestimate the debt issues emerged globally; the Chinese Ministry of Foreign Affairs responded in writing to the Wall Street Journal that the Pakistan project is still a model for the BRI countries, but related projects need to adapt to changes in the environment and it will make necessary adjustments, while stating that China and Pakistan are in close communication regarding the financial situation. However, the Chinese Foreign Ministry has not given a clear explanation on how to ease the debt crisis in Pakistan.
In reality, there is no way to alleviate how the West rendered the Pakistani debt crisis. Anbound’s chief researcher Chan Kung believes that the framework of the “New Silk Road Common Market” proposed by Anbound not only can provide an effective solution to the debt problem of Pakistan, it can also consolidate the collaboration framework of the “common market” between the two countries, creating an institutional framework for future stable cooperation. The common market is in fact a supranational agreement; regardless of the risks of the regimes of various countries or if there would be any regime changes, life must go on and the market will continue to exist and develop. Therefore, the common market can provide relatively reliable guarantee.
Among the cooperative ideas under the common market framework, financial cooperation and stability mechanisms are included. If the debt crisis faced by Pakistan deteriorates, it may turn into financial risk. Under the common market framework, China can fully extend its support. Chan Kung’s specific proposal is to alleviate Pakistan’s debt problem, focusing on defining investment. There are two kinds of investment, one is cash investment, that is actual money in investment; the other is physical investment, which is investment through physical items. Chan Kung explains that Pakistan lacks infrastructure, and infrastructure investment requires a large amount of steel and cement which can be found in Chinese inventories. In addition, Pakistan also needs a large amount of consumer goods, and large amount of consumer goods and spare capacity can be found in China as well. If these physical objects are included in the investment projects, it could be considered to be foreign investment for Pakistan that can increase its foreign exchange, accounting rather than as a direct liability to China. By changing the accounting rules, Pakistan can temporarily and effectively alleviate its external liabilities. It should be emphasized that the adoption of this “common market” framework, which is several years late, will greatly enhance Pakistan’s credit status and stabilize its exchange rate.
It should be emphasized that although China can provide help to Pakistan on the debt issue, it should realize that for the development of the New Silk Road Common Market; so far Pakistan has not shown clear terms of general policies and direction. If China and Pakistan do not recognize the importance of the "common market," it would be difficult for such cooperation to achieve effective results. If the Pakistani parliament can also obtain the Opposition’s support in the "New Silk Road Common Market" agreement, then the role of the "common market" of China and Pakistan will be more effective than some mere concepts.
More importantly, if China and Pakistan can establish the “New Silk Road Common Market” model, the model can also be replicated in other countries. A few years ago, Anbound had proposed that establishing a common market cannot be done immediately. Instead, it should be started from regions that have good relations and potential like Pakistan, Bangladesh, Afghanistan, and China. The next step of the development is to consider including the five Central Asian countries, followed by other countries. In fact, the common market is a large-scale regional development plan that not only helps to lift the world's poorest regions out of poverty to realize the UN's poverty reduction goals it also gives full play to China's comparative advantage as a land-right country. By rebuilding the "New Silk Road Trade Axis", it will form a balanced situation with the "sphere of influence" of the sea power countries. Objectively, considering China’s current strength, it would be ideal to have good cooperation with Bangladesh, Afghanistan and Pakistan with China; this will provide effective support for China's geopolitical and economic cooperation in South Asia and West Asia.
Final Analysis Conclusion:
With the West speculating on the BRI participating countries’ debt issue, China should cooperate with relevant countries to achieve collaboration under the framework of the "New Silk Road Common Market" and create a stable order basis, as well as political foundation for economic development.
