New Delhi, Dec 1 – China’s package of loans under the Belt and Road Initiative (BRI) has put a heavy strain on repayment schedules in many low‑ and middle‑income nations, especially those with large infrastructure debts, currency mismatches and projects that under‑perform financially. Countries such as Sri Lanka, Laos, Zambia, the Maldives and Pakistan are all feeling the squeeze. Islamabad, for instance, now carries roughly US$30 billion of debt tied to the China‑Pakistan Economic Corridor (CPEC). Most of these endeavors remain unfinished, hampered by economic, security and environmental headaches. Even though Pakistan had to watch cautiously as other nations struggled with debt traps, it still needed CPEC’s roads and rail lines for development.
Pakistan’s economy is now in the midst of a tight balance‑of‑payments situation and a fiscal crunch driven by high external debt, low foreign‑exchange reserves and sluggish growth. To navigate this, the government has laid out a multi‑layered rescue plan: an IMF programme supported by bilateral guarantees from China, Saudi Arabia and the UAE, as well as short‑term injections and talks over debt restructuring. The country secured a new US$7 billion Extended Fund Facility from the IMF, backed by pledges from regional partners to cover financing gaps. China, Saudi Arabia and the UAE also provided financial guarantees and rollover commitments, which helped avoid an immediate sovereign default and gave the IMF the confidence to move forward.
A large portion of Islamabad’s external obligations comes from bilateral and commercial loans, with significant arrears owed to Chinese entities through CPEC. The resulting high debt‑service ratios mean that even modest depreciation of the rupee will sharply increase the cost of servicing foreign‑currency debt, tightening the budget and forcing a cutback on development and social spending. Presently Pakistan is staring at a host of risks: political instability could derail necessary reforms, growth may lag behind expectations hurting revenue, and external shocks like spikes in commodity prices could add further pressure.
The concept of debt‑trap diplomacy describes how Beijing sometimes offers large sums of credit to vulnerable states, then uses repayment difficulties to extract strategic concessions such as long leases or ownership stakes. This pattern—new loans for flagship projects, cost overruns, weak revenue, foreign‑exchange stress and eventual restructuring that may include equity stakes or onerous repayment terms—has surfaced repeatedly.
In Sri Lanka, the Hambantota port case is a textbook example: heavy borrowing to build a port that failed to generate sufficient commercial returns forced the country to hand over a 99‑year lease of the facility to a Chinese firm in 2017. The loss of sovereignty over a strategic asset sparked political backlash, prompting policy adjustments and costly restructuring. The Maldives faced a similar threat when rapid short‑term borrowing for airports, ports and resorts swelled external liabilities and depleted reserves, pushing the nation toward a sovereign‑debt crisis and forcing austerity measures, with China among its major creditors. Laos, meanwhile, saw its railway project deepen its asymmetric debt relationships: a large foreign‑currency loan, limited export capacity to repay it, rising inflation and reduced domestic investment. Zambia’s 2020 default and long‑running restructuring negotiations were also fueled by heavy borrowing for infrastructure and resource deals; China’s state banks have played a central role in its restructuring package, with the country’s fiscal adjustment involving spending cuts and negotiated terms that limit growth prospects.
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