Behind the impressive government growth projections and official speeches lauding the China-Pakistan Economic Corridor (CPEC) lies an uncomfortable reality: Pakistan’s economy is teetering on the brink of crisis.  Debt servicing, a yawning balance of payments, and longstanding structural hurdles continue to chip away at the government’s fiscal position, and stand-in prime minister Shahid Khaqan Abbasi is desperate to keep an even keel long enough for his PML-N party to contest upcoming elections in July. So far he has succeeded thanks to over $5 billion in loans from the Chinese government and Chinese banks, money that has largely been put toward debt servicing and shoring up Pakistan’s paltry foreign reserves. With another IMF bailout almost assured after the elections, South Asia’s second-largest economy and nuclear power now finds itself locked in a cycle of debt servitude, one that won’t be broken for the foreseeable future.

Background

At the heart of Pakistan’s potential crisis lies its balance of payments deficit. The country imports far more than it exports. The problem is particularly pronounced with regard to China; Chinese imports have spiked since the signing of the China-Pakistan Free Trade Agreement (CPFTA) in 2006, and they’ve surged even further with the advent of CPEC, which has brought some $60 billion worth of infrastructure investment and accompanying inflows of aluminum, cement, and other materials from China. Pakistan’s overall trade deficit stands at a projected $27.3 billion for the current fiscal year, representing a 17.3% year-on-year increase. The deficit comes even as exports are relatively robust at $2.23 billion, a four-year high. Total imports came in at a whopping $44.4 billion over the same period.