China and Pakistan now say the project will cost $6.7 billion — a significant reduction from the $9.8 billion Beijing had insisted on in recent years.
The decision amounts to a shot in the arm for the project, first proposed nearly a decade ago.
The Most Critical Artery of Pakistan’s Railway Network
The ML-1 runs from the port city of Karachi through the country’s major central urban centers and then loops west toward its terminus in Peshawar, near the border with Afghanistan. A northern branch of the ML-1 heads in the direction of China, ending roughly 400 miles from the Sino-Pakistan border.
While presently operational, trains on the ML-1 currently run at speeds of roughly 35 to 65 miles per hour. In addition to its sluggish speeds, the line has fallen into disrepair and is prone to deadly accidents. The proposed upgrades would vastly improve safety, reliability, as well as speed. The new tracks would be able to accommodate speeds up to 100 miles per hour.
The revamped ML-1 would by no means be a bullet train, but it would be transit hub for goods from Central Asia and perhaps even China. For Pakistan, the ML-1 may also enhance its military logistics. The line, which runs close to the border with India, could also improve the mobility of the Pakistani Army personnel and hardware in a time of conflict.
While the downward cost revisions improve the ML-1’s financial viability, it faces a much bigger structural challenge: Pakistan is drowning in debt.
Pakistan’s Debt Bomb
At the moment, Pakistan is in no position to add a mega project to its debt portfolio. Islamabad will need to repay close to $80 billion in external debt over the next three years. Short on dollars, Pakistan will need to reprofile or restructure its external debt by next year, when its current International Monetary Fund (IMF) program expires.
Doing so would require thorny talks not just with the IMF and Western powers, but also China, which is not only Pakistan’s closest bilateral partner, but also its largest bilateral lender.
Pakistan’s debt to China is close to $30 billion. There are also mounting arrears owed to Chinese state-owned companies that have built and operate electric power projects in Pakistan. Much of this has been through the China-Pakistan Economic Corridor (CPEC), which is associated with the Belt and Road Initiative.
Despite the close ties between Beijing and Islamabad, debt reprofiling or restructuring won’t come easy. Pakistan has made such requests to be made in the past on the expensive electric power projects only to be shot down. The reason? China has emerged as the world’s largest creditor. There’s a long line of countries seeking debt relief. Beijing fears establishing a precedent and is managing these crises one by one.
But some good news has emerged for countries like Pakistan in recent months. China has finally agreed to debt restructuring with Sri Lanka and Zambia, two countries that have defaulted in recent years.
Yet while Beijing has provided Islamabad with vital short-term lending to avert default, debt restructuring talks face another complication: geopolitics. The United States has used Pakistan’s growing liabilities to China as an opportunity to paint Beijing as a predatory lender. It’ll demand that Chinese banks take a hair cut or make other sacrifices next year. China will not want to be seen as submitting to U.S. demands. The process could be drawn out if Washington makes this a public battle and if Islamabad continues with its attempted rebalancing toward the West.
Since late 2021, the Pakistan Army has made clear that it desires to tilt back toward the United States. It has, for example, provided arms to Ukraine through the U.S. and other Western powers.
So Beijing could slow the process down, seeking geopolitical concessions from Islamabad. The uncertainty would push Pakistan into yet another economic crisis.
Fearing such a scenario, Pakistan’s military-backed caretaker government is aiming for a rapid-fire side of state assets to Saudi Arabia and other Gulf Arab states, so it quickly accumulate the foreign currency needed to fulfill its external debt obligations next year.
Infrastructure is never easy. For Pakistan to revamp its dilapidated railway network, it will need to avoid an economic crash and a geopolitical clash.
Arif Rafiq is the editor of Globely News. Rafiq has contributed commentary and analysis on global issues for publications such as Foreign Affairs, Foreign Policy, the New Republic, the New York Times, and POLITICO Magazine. He has appeared on numerous broadcast outlets, including Al Jazeera English, the BBC World Service, CNN International, and National Public Radio.