It’s been barely more than two weeks since Imran Khan’s electoral victory in Pakistan, but the country’s next prime minister is already facing a geopolitical crisis. Pakistan’s current-account deficit is perilously high, its foreign-currency reserves perilously low. Its external debt has ballooned after accepting some $62 billion in Chinese financing, part of an ambitious regional infrastructure project that has yet to boost Pakistan’s economy. Khan’s first major act as prime minister may be asking the International Monetary Fund for a new bailout.
–But that’s where the trouble begins. Critics at home lament Pakistan’s addiction to the fund – it has spent 22 of the past 30 years laboring under the terms of more than a dozen successive IMF bailouts. The austerity measures the IMF demands, they argue, have shackled growth and prevented Pakistan from making substantive reforms. Pakistan could instead turn to China for fresh loans, but that could make Islamabad even more beholden to Beijing than it already is.
In that regard, Pakistan is becoming the latest testing ground of a key plank in China’s global strategy. Its sweeping One Belt, One Road initiative – a vast $1 trillion infrastructure and development plan that has led to Chinese companies investing in bridges, airports, dams, railroads and other ventures in dozens of countries – is Beijing’s signature global project. But it has prompted accusations that it fuels corruption and autocratic behavior in vulnerable countries. From Malaysia to Colombia, the opacity surrounding Chinese-backed endeavors has led to allegations of graft, mismanagement and, in the case of at least one mega-dam project, possibly triggered a devastating landslide.
Moreover, the initiative has pushed some countries into a morass of debt. The starkest example so far has been Sri Lanka, whose government was unable to repay $6 billion in loans used to build an expensive Chinese-led port and airport project in Hambantota, a once-sleepy but strategically located backwater. As a result, Sri Lankan authorities ceded control of the port and some 15,000 acres of land around it to Beijing on a 99-year lease. The move led to accusations that China is engaging in a 21st century style of “creditor imperialism.”
“States caught in debt bondage to China risk losing both their most valuable natural assets and their very sovereignty,” warned Indian commentator Brahma Chellaney, an outspoken critic of Beijing. “The new imperial giant’s velvet glove cloaks an iron fist – one with the strength to squeeze the vitality out of smaller countries.”
At a Tuesday panel in Washington, Husain Haqqani, a former Pakistani ambassador to Washington, quipped that the Chinese-Pakistan Economic Corridor – the formal name for a complex $62 billion infrastructure-development plan – actually should be called “Colonizing Pakistan to Enrich China.”
–Both Chinese and Pakistani officials argue that charges of “colonialism” are overblown. The two countries share a historic friendship, largely framed by their mutual antipathy toward India. In recent years, China has stepped up its involvement in various sectors of the Pakistani economy, from its nuclear-energy industry to the establishment of a host of special economic zones to a costly port project in the city of Gwadar on the Arabian Sea.
“Pakistan does need China’s help, as it faces a slew of economic challenges, including a backward industrial supply chain, weak foreign trade and a huge portion of its population still living in poverty and without proper education,” noted an editorial in China’s state-run Global Times, urging Beijing officials to “ignore the noise and step up its investment in Pakistan.”
Khan, meanwhile, is a fiery nationalist and economic populist. He has repeatedly gestured to the “China model” as something Pakistan should emulate. But it’s not yet clear what any of that means in practice, and the enthusiasm for his rhetoric may simply reflect widespread frustration with Pakistan’s systemic corruption and long-standing habit of turning to the IMF and accepting its diktats.
“The pattern is always the same,” wrote Nadeem Ul Haque, a former IMF official and former deputy chairman of the Pakistani government’s Planning Commission. “With the Fund’s blessing, the government goes on a shopping spree, taking out costly loans for expensive projects, thus building up even more debt and adding new inefficiencies. After a few years, another crisis ensues, and it is met by another IMF program.”
–Khan doesn’t look set to break that tradition. But the Trump administration may force him to. “Make no mistake. We will be watching what the IMF does,” said Secretary of State Mike Pompeo at the end of last month, arguing that he didn’t want the U.S. to indirectly refinance Pakistani loans to China. “There’s no rationale for IMF tax dollars – and, associated with that, American dollars that are part of the IMF funding – for those to go to bail out Chinese bondholders or China itself.”
As tensions flare between China and the United States over trade, that hawkish outlook is only gaining support. In Washington, lawmakers are increasingly wary about China’s opportunistic maneuvering across Asia, Africa and Latin America.
“The goal for the [Belt and Road Initiative] is the creation of an economic world order ultimately dominated by China,” read a recent letter from a bipartisan group of senators to Pompeo and Treasury Secretary Steven T. Mnuchin. “It is imperative that the United States counters China’s attempts to hold other countries financially hostage and force ransoms that further its geostrategic goals.”
For Pakistan, caught between China’s ambition and Washington’s concern, there are few good choices.
“These are our two masters,” said Turab Hussain, an economics professor at the Lahore University of Management Sciences, told the New York Times. “How do you serve both?”