China and Pakistan on November 2 announced the beginning of a railway project under the China-Pakistan Economic Corridor (CPEC) that costs up to $9.85 billion.
The project looks to renovate a 1,163-mile colonial-era route from Karachi to Peshawar that will accommodate high-speed trains. Bloomberg noted that Pakistani officials had expected funding from Beijing.
After years of negotiations, it was approved with a 45% cost hike on November 1.
The Express Tribune reported that Planning Minister Ahsan Iqbal had urged China to expedite the ML-1 project’s processing since failing to do so would risk collapsing the main railway network within a year.
An official handout reads, “The delay in the ML-1 will affect our Railways track which is already in a dilapidated condition after the recent flood.”
Pakistan has suffered economic losses of up to $30 billion from the disastrous floods this summer. The government was already in the middle of a balance of payments crisis beforehand.
Yet, China has also been in an economic malaise, which makes it more cautious about lending in Africa. In Pakistan, Beijing also recoiled back from bailing out the country earlier this year as its debts accumulated.
ML-1 has been shunned twice over the project price disagreement.
An official told Pakistan Today that China wanted the project inked for $8.2 billion, but Islamabad sought to have it signed for $6.1 billion, so the agreement could not be signed.
Identification of the project’s financial avenues was another factor. The official explained that “Chinese banks wanted some sovereign guarantees and negotiations in this regard could not be finalized.”
The International Monetary Fund disclosed in a report in September that China, including state-owned commercial banks, is the recipient of almost 30% of Pakistan’s foreign debt.
Washington has long referred to China’s lending projects as “debt trap diplomacy,” which tends to keep third-world nations more indebted to it than improving their economy. In June, Moody’s Investors Service changed Pakistan’s outlook from stable to negative for its financial uncertainties.