The China Pakistan Economic Corridor (CPEC) will take Pakistan back to a place it doesn’t want to be: knocking on the door of the IMF, as it did back in 2001. With a big difference this time around — the door may not be open.

CPEC will do a lot of great things for Pakistan and its genuine partner, China. For Pakistan, it’s a majorinfrastructure project which will help the country make a big step forward, from an emerging to a mature economy, creating a lot of jobs in the process.

For China, CPEC is the western route to the Middle East oil, and the riches of its ‘third continent,” Africa. It also serves Beijing’s strategic ambition to surround India, something that makes Pakistan a natural ally.

But it will do a few bad things for Pakistan, too. Like adding to Pakistan’s corruption, which keeps pushing the costs of the project higher by the day, making Pakistan more indebted to China.

That comes at a time when the country is already livingbeyond its means, as evidenced by persistent current account deficits, government debt, and external debt.

Pakistan recorded a Current Account deficit of 1.20 percent of the country’s GDP in 2016 fiscal year (July 2015 – June 2016), according to Tradingeconomics.com. In July – Dec 2016, the current account deficit was recorded at 2.2 percent of the country’s Gross Domestic Product. Current Account to GDP in Pakistan averaged -2.20 percent from 1980 until 2016.

Foreign Exchange Reserves in Pakistan decreased to 21019.20 USD Million in April from 21572.10 USD Million in March of 2017. Foreign Exchange Reserves in Pakistan averaged 15573.05 USD Million from 1998 until 2017.

Pakistan amassed a capital and financial account deficit of 989 USD Million in the first quarter of 2017. Capital Flows in Pakistan averaged -782.17 USD Million from 2011 until 2017.

Now, think of what will happen to these capital flows, as interest rates rise in the US, and you will see why taking on additional debt in projects like CPEC Pakistan is risking heading back to IMF — a not so friendly place for China’s allies these days.

Courtesy Forbes