New Delhi, Dec 1 (NationPress) The lending practices of China, particularly through initiatives like the Belt and Road Initiative (BRI), have imposed significant repayment challenges on numerous low- and middle-income nations. These countries, including Sri Lanka, Laos, Zambia, and the Maldives, have grappled with extensive loans for infrastructure, currency mismatches, and disappointing project returns.

Recent reports indicate that Pakistan now bears a staggering $30 billion debt to Beijing as part of the ambitious China-Pakistan Economic Corridor (CPEC) project.

Many of these initiatives remain unfinished amid significant economic, security, and environmental obstacles.

While Islamabad monitored other nations struggling under similar debt weights, it recognized the necessity of CPEC projects to enhance its infrastructure, such as roads and railways.

Currently, Pakistan is experiencing a critical balance-of-payments crisis and fiscal strain fueled by elevated external debt, dwindling foreign-exchange reserves, and sluggish growth.

The country is implementing a comprehensive bailout strategy, which includes an IMF program supported by bilateral commitments from China, Saudi Arabia, and the UAE, along with short-term funding and debt restructuring discussions.

The economic landscape in Pakistan faces immense pressure from significant external obligations, a depreciating currency, and soaring inflation, which have depleted reserves and fiscal flexibility.

The government has secured a new $7 billion IMF Extended Fund Facility with pledges of support from regional partners to bridge financing shortfalls and ensure implementation.

Moreover, Pakistan sought and obtained financial assurances and rollover commitments from China, Saudi Arabia, and the UAE, enabling it to avert an immediate sovereign default and encouraging the IMF to advance its program.

A substantial portion of Pakistan's external liabilities comprises bilateral and commercial loans, with notable commitments owed to Chinese firms associated with CPEC projects.

High debt-service ratios imply that even minor currency devaluations can sharply increase the rupee cost of servicing foreign currency debt, straining the budget and crowding out critical development and social expenditures.

Now, the nation is faced with multiple risk factors, including political instability that could hinder reform efforts, slower growth than anticipated that jeopardizes revenue goals, and external shocks such as spikes in commodity prices.

Interestingly, the term debt-trap diplomacy refers to scenarios where Beijing intentionally provides excessive credit to vulnerable nations, subsequently using repayment difficulties to secure strategic concessions like long leases or asset control.

This pattern is characterized by a cycle of substantial loans for flagship projects, cost overruns, weak revenue, foreign-exchange strains, and restructuring that may involve equity stakes, long leases, or burdensome repayment conditions.

In the case of Sri Lanka, the Hambantota port exemplifies this scenario, where heavy borrowing for construction with limited commercial viability left the country unable to meet its loan obligations, resulting in a 99-year lease of the facility to a Chinese enterprise in 2017.

This economic fallout led to a loss of sovereign control over a strategic asset and a political backlash that necessitated policy adjustments and costly restructuring.

Similarly, in the Maldives, rapid borrowing for airports, ports, and resorts coincided with a sharp increase in external liabilities and dwindling reserves, ringing alarm bells regarding the country's impending sovereign-debt crisis that constrained fiscal options and necessitated austerity measures, with China being a significant creditor.

In other instances, the China–Laos railway improved connectivity but also intensified asymmetric dependencies, with Vientiane facing substantial foreign currency loans, limited export capacity to service those debts, soaring inflation, and reduced domestic investment.

Heavy borrowing for infrastructure and resource sector deals also contributed to Zambia's default in 2020 and ongoing restructuring negotiations.

China's state banks have played a pivotal role as creditors in restructuring agreements, and the fiscal adjustments in Zambia have entailed spending cuts and renegotiated terms that restrict growth potential.