KARACHI: Following recent calm, Pakistan’s economy is about to embark on a phase of steady expansion. This is demonstrated by the fact that Islamabad’s credit rating was raised in July and August by well-known international rating organisations like Fitch and Moody’s. These upgrades recognise Pakistan’s ability to avoid economic and financial risks, thereby reducing the likelihood of a significant default on its foreign debt payments between 2023 and 2024.

Last month (August 2024), a New York Times opinion piece asserted, “Pakistan is mired in a deep economic crisis that it can’t climb out of, partly because of the need to pay billions of dollars in loans to China for infrastructure and other projects.”

The facts sharply contradict this claim. Pakistan’s economy is no longer in a serious crisis; rather, it is about to go from stability to growth.

After three years, inflation has dropped back to single digits, with a rate of 9.6% in August 2024. At $9.43 billion, foreign exchange reserves have reached a 26-month high, more than double the amount noted in February 2023. For more than five months, the rupee-dollar exchange rate has stayed steady at Rs278–279/$, with the current account deficit.

Next week, on September 12, the State Bank of Pakistan (SBP) is anticipated to lower interest rates for the third time in a row by a total of 1-1.5 percentage points in an effort to boost the economy.

Regarding the second portion of the opinion piece’s assertion—that Pakistan is imprisoned by billions of dollars in loans to China under the China-Pakistan Economic Corridor (CPEC) project, the centrepiece of the Belt and Road Initiative (BRI)—it is important to keep in mind that China was the first country to provide vital financing during Pakistan’s worst economic and financial crisis, which occurred between January and June 2023. Pakistan was able to avoid possible default on its foreign debt commitments because to this finance.

Following this, Pakistan received a short-term $3 billion loan from the International Monetary Fund (IMF) in late June 2023 to begin structural reforms, thanks to the commitments made by Saudi Arabia, the United Arab Emirates (UAE), and Qatar to close the financing gap for FY24. Therefore, Chinese funding turned out to be Pakistan’s lifeline in 2023, enabling the nation to usher in a new age of financial and economic stability at a time when it is now well-positioned for expansion and development.

China, the country with the second-biggest economy in the world and Pakistan’s neighbour, has stepped forward to help the country before. Previously, Pakistan’s economy suffered greatly from regular power outages between 2010 and 2015, with some areas of the nation suffering up to 18-hour outages per day.

For Pakistan, the infrastructure and power projects of CPEC have revolutionised the country by bringing back energy, boosting business, and stimulating the economy. Additionally, these programs created a large number of work possibilities nationwide.

According to current estimates, China is the source of between 20 and 25 percent of Pakistan’s $130.5 billion (as of June 30, 2024) total foreign debt.

Senior researcher at the Pakistan China Institute Umar Farooq noted in an interview with The Express Tribune that the average loan rate for CPEC energy projects is 4%, which is less than the 4.25% rate provided by Western organisations such as the World Bank. In addition, China has consistently granted Pakistan’s requests for loan rollovers in light of the nation’s financial situation. The notion that Pakistan is experiencing a “deep economic crisis” as a result of Chinese.

The Global Silk Route Research Alliance (GSRRA) Founding Chairman, Prof. Zamir Ahmed Awan, noted that while almost three-fourths of Pakistan’s debt is owing to non-Chinese, largely Western financial institutions including the IMF, World Bank, and Paris Club, the country owes much less to China. “This suggests that Pakistan is not trapped in CPEC debt, but rather in Western debt, if at all.”

He went on to say that the majority of CPEC projects that were finished in phase I are “revenue-generating” as opposed to “revenue-consuming.” In addition to producing revenue and profits for investors, projects like Gwadar Port and power and road efforts also assist in paying down the debt incurred during development.

After these loans are eventually returned over the course of 20 to 30 years, China will turn over the projects to Pakistan. These commercial loans often have extended terms and low interest rates. Apart from loans, China has provided Pakistan with significant gifts and investments at no cost.

According to Awan, the US is cautious about China’s expanding worldwide sway as a result of its more than $1 trillion in Belt and Road Initiatives. Consequently, Beijing’s technology, high-tech, solar, and electric car firms have been subject to penalties by Washington, which has persisted in its targeting of Beijing.