Perennially debt-ridden Pakistan has just celebrated a decade of cooperation with China. In August, the two countries marked the 10th anniversary of the China-Pakistan Economic Corridor, which has financed a lot of much-needed infrastructure, but also left the fragile south Asian state struggling to deal with a crippling debt load.
How successful the vast bilateral loans-for-infrastucture programme has been depends on who you ask. CPEC’s critics say the largest partnership in Beijing’s Belt and Road Initiative has been critical in building highways and high speed rail lines and linking up a patchy power grid. In total, $62bn has been lavished on CPEC projects since 2013.
Pakistan paid for most of this by borrowing: it owed $126bn in external debt at the end of 2022. The country is on the hook for $77.5bn of external debt repayments in the three years to June 2026. Much of this will flow direct to China: it’s the country’s largest creditor, owning around $30bn of Pakistan’s external debt.
Has this left Pakistan terminally indebted to China? Yes, say those who see the BRI as a ‘debt trap’ engine designed to make fragile sovereigns financially beholden to Asia’s largest economy.
They point to Beijing’s decision to roll over a $2.4bn loan in July — which Islamabad was to have paid back in 2024 and 2025 — as evidence that it is unwilling to restructure debt, let alone offer debt relief or write off debtor nations’ obligations.
To which critics of those critics reply: ‘Nonsense’. To many in the upper echelons of Pakistan’s government, Beijing is the most important friend they have. In August, then prime minster Shehbaz Sharif called CPEC a “game-changer” for Pakistan.
“China has been Pakistan’s all-weather friend,” says Reza Baqir, a former governor of Pakistan’s central bank, now global practice leader of Alvarez & Marsal sovereign advisory services in Dubai. “Given the magnitude of debts owed by Pakistan to China, no solution to its debts is possible without Beijing’s support.”
He balks at suggestions that China is responsible for Pakistan’s vicious debt cycle. “In my view, China-bashing is not the solution. We need, rather, to focus on the other side: did debt generate the growth it was intended to? Pakistan borrowed from China and other countries: we need to analyse impartially what government borrowing was used for.”
Instead, he points the finger of blame at the International Monetary Fund. In July, it approved a $3bn bailout, with $1.2bn paid up-front — taking the number of loans disbursed to Pakistan by the Fund since 1958 to more than 20.
Yet assistance from international financial institutions should in future be the start of a journey, not an end in itself, Baqir warns.
“[They] need to ask themselves: when they lend money, are they cognisant of what it is being used for? Important lessons need to be learned. I hope that when the IMF does its next bailout [with Pakistan], it learns from its own mistakes. It’s not enough to always blame borrower countries.”
Central to this, he adds, is more transparency on the part of the creditor. “We need to shed light into the chamber of debt. There needs to be greater transparency of lending terms from official and private creditors.
“Currently, the IMF and the World Bank put the primary responsibility of the onus of disclosure on borrowers. There is a deep power imbalance between a distressed debtor and its official creditors, and it’s a tall order to ask the debtor to disclose the terms of the borrowing when the official creditors may have reservations about the disclosure.”
Both Bretton Woods bodies can, he adds: “Lead by example and require official creditors who are represented in their executive boards to agree to disclose the terms of all their future lending to developing countries.”