Pakistan Seeks $2 Billion ADB Loan for CPEC Railway Project Amid China's Pullback

In a significant development for Pakistan’s key infrastructure venture, the China-Pakistan Economic Corridor (CPEC), Islamabad has sought a $2 billion loan from the Asian Development Bank (ADB) to enhance the Karachi-Rohri segment of the Main Line-1 (ML-1) railway. This decision follows China’s withdrawal from funding the project due to payment delays and growing security concerns.

The 480-kilometer Karachi-Rohri section is a pivotal component of the $6.7 billion ML-1 railway modernization project, which stretches 1,726 kilometers from Karachi to Peshawar. As a major element of CPEC — the $50 billion portion of China’s Belt and Road Initiative (BRI) in Pakistan — the project plays a vital role in improving the country’s transport and trade connectivity.

Officials have revealed that an ADB inspection team visited the project site in July and has tentatively agreed to provide financing. If approved, this would be the first instance of a core CPEC project receiving funding from a multilateral agency rather than China. However, the loan terms are expected to include higher, market-based interest rates, unlike Beijing’s previous concessional lending.

This cautious stance by China marks a shift from its earlier approach. During his visit to Islamabad on August 21, Chinese Foreign Minister Wang Yi advocated for third-party participation in CPEC projects, differing from China’s previous insistence on being the sole financier of ML-1. Previously, Pakistan had turned down an ADB offer in 2017, siding with China’s position at the time.

Several concerns have contributed to China’s withdrawal. Pakistan owes approximately $1.5 billion to Chinese power producers, and frequent attacks since 2021, resulting in the deaths of at least 21 Chinese nationals, have heightened security fears. Additionally, cost increases have affected confidence: initially estimated at $6.8 billion, the project cost was adjusted to $9.85 billion in 2022, and later reduced to $6.7 billion.

“China realized the returns were uncertain, and Pakistan’s payment issues made the risks higher,” stated Haroon Sharif, chairman of the Pakistan Regional Economic Forum. Analysts suggest that Beijing now prefers Pakistan to rely more on international lenders like the ADB or IMF to limit its own financial exposure.

With ADB’s participation, the project is anticipated to adhere to stricter procurement rules and competitive bidding, marking a departure from previous CPEC projects generally awarded through government-to-government agreements. Experts believe this could transform the financing landscape for large-scale infrastructure projects in Pakistan.

While China’s diminished role in ML-1 has led to speculation about a shift in its strategy towards Pakistan, analysts assert that bilateral relations remain strategically robust. According to Muhammad Shoaib from George Mason University, “ML-1 alone won’t alter the fundamentals of China-Pakistan relations.”