As Pakistan and Chinese officials discuss the terms of the loan for the ML-I railway project, local businesses grow worried. While there are many supposed benefits on the surface of the loan deal, there are many ominous conditions that may soon reveal themselves. 

As for the benefits, the construction of the Karachi-Hyderabad segment of ML-I will help reduce transport times and fuel costs for businesses in the long run. As a result, businesses will be able to reduce the costs of their goods and services, resulting in greater demand for these products. This is likely to increase the profit margins of many businesses, especially those transporting goods around Karachi and Hyderabad.

Hyderabad, known for its export of textiles and agricultural produce, will benefit from the construction of the railway, which will allow goods to flow freely to the port city of Karachi. This will allow for exporters to guarantee shorter delivery times to international buyers along with lower costs thanks to the railway.

However, local construction companies should not be delighted as they may not even get the contracts to work on the railway to begin with. Historically, Chinese loans often come with clauses to employ Chinese companies or the contract is already pre-awarded to a Chinese firm.

So, while on paper, the influx of a billion dollars looks great, the reality of the matter is that the loan only employs Chinese firms that bring in its nationals to work on the projects. While these Chinese employees may spend part of their earnings here in Pakistan, the majority of the proceeds of projects are repatriated back to China. 

Moreover, the materials to be utilised are also often sourced from China. As a result, Pakistani businesses do not benefit meaningfully from these loans. An example of such loans can be seen primarily in Africa and Eastern Europe, which rely on Chinese loans.

Moreover, Chinese officials are trying to get Pakistan to sign the loan agreement at an interest rate of 2.3 per cent, while the Pakistani side is making huge efforts for the interest rate to be 1 per cent. If Chinese loan conditions are agreed upon, the government will have to foot higher interest payments on the loan - A loan where their own companies and businesses are not the primary beneficiaries.

While Pakistan relies on loans to finance the majority of its large-scale projects, it might not sound like a great deal to secure them at unfavourable terms. However, the loan deal will most probably be secured by Pakistan regardless. Will this be a gift to the economy or a curse? Time shall tell.