The Chinese vice premier and special presidential envoy, He Lifeng, landed in Islamabad last Sunday to commemorate the tenth anniversary of the China-Pakistan Economic Corridor (CPEC). A flagship project of China’s global Belt and Road Initiative, the infrastructure development collaboration is meant to upgrade Pakistan’s land transport infrastructure, develop the strategically important deep-water Gwadar port, and put up power plants.
These billion-dollar collaborations have turned Beijing and Islamabad into what the Chinese foreign ministry called “all-weather strategic cooperative partners and iron-clad friends.” While both countries report that “tangible contribution” has been made and projects are “flourishing,” the ground reality is far from rosy.
Critics cite project delays and non-starter industrial zones that were meant to boost the country’s exports. With dwindling foreign exchange reserves, payments to Chinese power companies have also fallen behind to the tune of $1.26 billion (350 billion rupees).
And it’s not just the mounting debt crisis. Pakistan is facing turmoil on multiple fronts. Islamabad’s acute political, economic, and security woes have generated fears that it might become a failed state.
Economic Crisis
Decades of fiscal mismanagement, widespread corruption, and excessive spending on defense have led to a state of economic crisis. Greatly reliant on oil imports, the country has also been severely affected by the blockade of grain imports from Ukraine. With inflation running at highs not seen in half a century and mounting foreign debt, Pakistan is in dire straits.
Allies have been stepping up to bail Islamabad out. Saudi Arabia has infused billions of dollars to shore up its cash reserves. The IMF has disbursed $1.2 billion of its $3 billion bailout package.
UAE has offered to construct a multipurpose cargo terminal for 85 percent control of a major quay at Karachi’s port. The oldest and busiest port operations have already been outsourced to Abu Dhabi Port Group for 25 years. Similarly, Qatar is discussing taking over the operations of the country’s three main airports. All these are desperate measures being pursued to keep the treasury ticking.
But, the huge figures pale when faced with Pakistan’s debt mountain. According to some sources, Pakistan’s external debt reached $126 billion in December 2022, 35 percent of its GDP. Islamabad will have to repay $75 billion in foreign debt from now till mid-2026.
The Chinese government and non-government bank loans account for nearly 30% of Islamabad’s external debt, around $23 billion, according to the IMF’s report for 2022. The massive jump in Chinese debt is attributed to CPEC projects and unfavorable terms. In late July, Beijing rescheduled over $2 billion debt for two years. Though this has brought some relief to Islamabad, the country is in dire straits.
Political Turmoil
Pakistan is a country often wracked by political upheavals. After the ousting of former Prime Minister Imran Khan last year, the political climate in the country is yet to settle down. His arrest in early May triggered violent protests across the country. The ruling coalition has decided to dissolve the government in early August and hold general elections. The military has a history of interfering in the country’s politics and is believed to be the kingmaker behind the scenes. Despite being a democracy, the fate of elected governments has been choppy since the country was formed in 1947.
In the current political climate, the ruling coalition is expected to return to power as long as the military generals continue offering their blessings. With the former PM Imran Khan still enjoying considerable mass support, it is unlikely that the government will enjoy a significant majority in the parliament which could lead to another unstable term.
Security Threats
Even as allies offer bailouts and political parties claim the general elections will turn the tide, there is another major threat looming – extremist attacks.
Pakistan is facing the ripple effects of the Taliban takeover of Afghanistan. The country’s border regions have been rocked by terror attacks perpetuated by Tehreek-e-Taliban Pakistan (Pakistan Taliban), the Islamic State-Khorasan (IS-K), and others. Scores have died, and hundreds have been injured in attacks targeted at places of worship and political rallies.
Islamabad’s decades-long support of extremist terror groups is now threatening the country’s peace. It is well known that Pakistan’s government and military have supported the Islamist extremists providing both refuge and resources. In return, the establishment has used these organizations for geopolitical gains.
Facing economic and political headwinds, Islamabad can ill-afford to worsen the security situation in the country. Even benevolent lenders will expect a certain level of safety and security for their investments and personnel. With hawkish China and extremist Taliban in the picture, Pakistan should not be left to become another flashpoint.
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TIPP Takes
Geopolitics And Geoeconomics
1. Russia Considers Returning To Black Sea Grain Export Talks: U.S. – Reuters
Russia is prepared to return to talks on a deal that had allowed the safe Black Sea export of Ukraine grain, but “we haven’t seen any evidence of that yet,” the U.S. envoy to the UN said.
“We have seen indications that they might be interested in returning to discussions. So we will wait to see whether that actually happens,” she said without further details.
2. Ukraine Says Second Armed Rebellion In Russia ‘Not Too Far Off’ – Al Arabiya
“The current situation for the Kremlin is such that the unrealized desire for a second offensive on Kyiv will be overshadowed by the urgent need to prepare to meet a second march on Moscow,” Ukraine’s National Security and Defense Council secretary said.
Russia faced a short-lived insurrection when Wagner mercenary boss Yevgeny Prigozhin launched an uprising last month that shattered the “myth” of the “stability” President Vladimir Putin portrayed.
3. Hammer, Sickle Removed From Giant Kyiv Statue – AFP
Workers lowered a hammer and sickle from a gigantic statue that watches over Kyiv as part of a campaign to remove Soviet symbols that have ramped up since the Russian invasion.
Standing on top of a war museum building, it is known in Ukrainian as Batkivshchyna Maty, literally “Fatherland Mother.”
Ukraine’s Culture Ministry has backed a plan to give the statue a new shield bearing the country’s trident emblem.
4. Kremlin Critic Navalny Faces Decades More In Prison – AFP
A Russian court will deliver its verdict on Friday in the trial of jailed opposition leader Alexei Navalny, who is facing extremism charges.
Prosecutors have requested a jail term of 20 years on charges that include financing extremist activity, publicly inciting extremist activities, and “rehabilitating Nazi ideology.”
In his closing statement to the court, Navalny criticized Russia’s military operation in Ukraine and said that Russia was “floundering in a pool of either mud or blood.”
5. U.S. Formally Invites China’s Foreign Minister Wang Yi To Washington – Al Jazeera
The U.S. State Department confirmed the invite, saying Washington expects Wang to accept it, but it did not specify a date for the visit.
The offer was previously extended to Wang’s predecessor, Qin Gang, who was removed after just seven months in the position.
On July 25, Qin– a former ambassador to the U.S. – was abruptly removed from his post and subsequently replaced by Wang. No reason was given for the personnel change.
6. Taiwan Vice President Lai To Transit U.S. During Paraguay Trip – Kyodo News
Taiwan Vice President Lai Ching-te is expected to transit through New York and San Francisco later this month en route to and from Paraguay.
The vice president’s planned U.S. transit is set to anger Beijing, which considers Taiwan its own and opposes any official contact between other countries and the self-ruled democratic island.
7. Solomon Islands Newspaper Promised Positive China Coverage In Exchange For Funding – RFA
The Solomon Star, a Solomon Islands news company, was granted more than $130,000 by the Chinese government in exchange for agreeing to “promote the truth about China’s generosity and its true intention to help develop” the Pacific island country.
The Solomon Islands has become a hotspot in Chinese-U.S. rivalry in the Pacific after the government of Prime Minister Manasseh Sogavare switched the island country’s diplomatic recognition to Beijing from Taiwan in 2019.
8. U.S. Credit Rating Downgraded Over Rising Debt, ‘Standards Of Governance’ – Al Jazeera
Top rating agency Fitch has downgraded the United States’s credit rating over its rising debt and a “deterioration in governance standards,” prompting protests from the White House.
Fitch, one of the big three rating agencies, dropped the credit rating to AA+, down one notch from the highest rating AAA.
The downgrade marks only the second cut by a major rating agency in U.S. history.
9. Iraq: UK Acknowledges Islamic State Committed Genocide Against Yazidis – Middle East Eye
Lord Ahmad, the UK’s minister of state for the Middle East, announced ahead of the ninth anniversary of atrocities committed against the religious minority community.
In August 2014, IS began mass killings against Yazidis in Iraq’s Sinjar province, capturing women, killing men, and using Yazidi children as soldiers.
The UK now officially acknowledges five instances of genocide: the Holocaust, Rwanda, Cambodia, Srebrenica in Bosnia, and IS atrocities against Yazidis.
10. North Korea Slams France For Staging Joint Air Drills With South Korea – Yonhap
North Korea lambasted France for holding a combined air exercise with South Korea for the first time last week, decrying it as an “undisguised military provocation” threatening the North’s security.
Ryu Kyong-chol, a researcher at Pyongyang’s Korea-Europe Association, criticized in a statement after the two countries kicked off the two-day drills last Tuesday.
11. European Countries Begin Evacuation Of Citizens From Coup-Hit Niger – Al Jazeera
France, Italy, and Spain had all announced evacuations from Niger for their citizens and other European nationals.
The first of three flights to evacuate French and European citizens from Niger lifted off Tuesday evening. The evacuations come as the military governments of Burkina Faso, and Mali warn against any military intervention in neighboring Niger.
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Republished with permission from TIPP Insights
