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South Asia

CPEC: Cause or remedy to Pakistan’s debt dilemma?

M Waqas Jan

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New times, Similar woes

Pakistan’s most recent debt and balance of payment crises have come to highlight yet again the continuing fragility of its economic and financial situation. Even despite a considerably improved security situation and a significant rise in its GDP growth rate, Pakistan’s current account deficit over the last fiscal year has neared the $16bn mark reducing its Forex reserves by nearly 40pc. This will likely further exacerbate public debt, which currently stands at a staggering 70% of GDP. Add to that the political upheaval of the current  election season; the past few year’s narrative of Pakistan emerging  as a key developing market stands in all out jeopardy, as investors both at home and abroad watch with increasing trepidation.

This bodes ominously for the widely publicized China Pakistan Economic Corridor (CPEC), which has over the last few years dominated economic discourse within the country. Having become increasingly intertwined within Pakistan’ politico-economic framework, CPEC’s detractors and supporters both at home and abroad have hotly debated whether CPEC itself is the cause, or remedy to much of the country’s economic and financial troubles.

Warnings of an impending Debt trap

For instance, the widening current account deficit over the last few years has been continually attributed to the huge import costs of machinery and related building materials for CPEC projects currently underway. This was highlighted by the government as necessary given their stance that importing such capital goods was essential to the long-term restructuring and development of the country. This was also the reason used to justify the rampant borrowing undertaken by the government. By issuing sovereign bonds and taking on expensive commercial loans, the government in effect borrowed more in its attempt to curtail dwindling Forex reserves; reserves that were, and are still crucially needed to meet the ever widening current account deficit.

In a similar vein, critics both in and outside of Pakistan have pointed out the potential of CPEC turning into a ‘debt trap’ for a structurally and financially weak Pakistan. Parallels are often drawn against the Sri Lankan experience of having China fund and build the Hambantota sea port only to have it included as part of a debt-for-equity swap, when low revenues and high liabilities left it unfeasible for the Sri Lankan government to own and operate it. The massive liabilities being incurred on behalf of CPEC projects are often compared to this example.

This is especially true considering Pakistan’s increasing reliance on both public and private Chinese banks for financing CPEC related projects. This over-reliance on Chinese funding has in fact extended beyond CPEC projects with the Chinese government repeatedly offering small bailouts to the Pakistani government. The most recent one being the $1 billion emergency loan released at the end of June to help cover Pakistan’s unsustainable import bill for the next few months.  Thus as CPEC’s detractors have pointed out, there is certainly a growing dependency on Chinese funds that can in turn be used as leverage against Pakistan on the geo-political front.

Age-old cycles of debt induced poverty

On the other hand, despite criticisms identifying CPEC as a potential threat to Pakistan’s politico-economic autonomy, it is extremely difficult to argue that the Pakistani economy would be any better off without CPEC. Owing to deep seeded politics and decades old economic structural failings, Pakistan has been unable to mount the sort of economic turnaround seen in the other post-colonial yet newly industrialized Nations of Asia.  This is in spite of the comparisons tinged with nostalgic ‘what ifs’, which are often drawn against the economies of the East Asian tigers and even China for that matter.

Yet, there has been little if any effort to emulate the export led growth strategies of the above countries backed by a strong industrial and manufacturing sector. In fact, both exports and manufacturing have instead declined over the last few years, serving as the most glaring examples of the Pakistani economy’s structural failings. Moving beyond short term measures of financing the deficit through loans and bailout programs, expanding the country’s exports is in fact the only viable and sustainable solution to the country’s widening Current Account deficit.

This is in contrast to prevailing policy measures that have continued to relinquish the country’s politico-economic autonomy to its creditors. The only difference being that policy makers, in light of deteriorating relations with the US over the last few years, have preferred to slowly substitute China for the Bretton Woods institutions as its major source of credit. As has been for decades, the economy’s reliance on external funding remains the same even in light of dramatic shifts in the global political economy.

Still, even amidst mounting public debt and new credit lines from Chinese sources, Chinese officials stationed in Islamabad have gone to great lengths to point out that, out of the $19 billion used to finance CPEC projects so far, only 31.6% has comprised of loans to the government in the form of preferential buyer credit. The rest of the financing has been doled out in the form of aid, interest free loans and loans secured by private investors from commercial banks, all of which are mostly outside of Pakistan’s debt servicing obligations. Taking into account both ongoing and completed early harvest projects, the same officials have placed the overall burden of CPEC projects at around 10% of the country’s overall debt servicing obligations. They too point out that the primary factor behind Pakistan’s worsening fiscal and external accounts is more due to its economy’s inherent structural limitations and challenges; the same challenges that have plagued Pakistan and the surrounding region for decades.  They argue that it is overcoming these very limitations and challenges that CPEC as a part of the overall vision of the Belt & Road initiative aims to address over the long run in a holistic, sustainable manner.

Of Grand visions and dreams

Coming back to Pakistan’ gaping debt crisis in relation to CPEC, it is unlikely that debt under CPEC has played a major role in bringing the economy to its present position. Despite being a slave to geo-political tensions, Pakistan’s economy has suffered more from years of mismanagement and structural failings that have moved beyond the security dynamics of the South Asian region.

What CPEC instead does, is offer in concrete terms, a viable chance for the country to prioritize its economy as the basis for its power and influence within the region, in the same way China has done at a global level.  It offers perhaps the only realistic chance for Pakistan to move beyond its Agrarian focus and develop a robust manufacturing sector to help add greater value to its exports. By successfully leveraging the massive investments in energy, transport and communications infrastructure as well as the financial opportunities under corresponding SEZs, Pakistan can use CPEC as an opportunity to break free of its present structural limitations that have so far reinforced the ensuing cycles of debt and poverty.

This however, is only possible if the underlying, decades-old problems of the present debt crisis are correctly identified and remedied in accordance with a sustainable long-term approach. While all of this is unlikely to materialize overnight, policymakers and administrators overseeing CPEC need to re-prioritize the development of long-term sources of revenue, as opposed to the short-term sources of credit that have come to characterize CPEC in day to day politico-economic discourse. If not, then the entire CPEC initiative is reduced to being just another excuse to borrow more funds to keep the economy afloat. This serves neither Pakistani nor Chinese interests in the long run.

Research Associate and Program Coordinator for the China Study & Information Centre (CS & IC) at the Strategic Vision Institute, a non-partisan think tank based out of Islamabad. He can be reached at waqas[at]thesvi.org

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South Asia

Pakistan’s Increasing Tilt towards China

M Waqas Jan

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In a recent interview with the Washington Post; Prime Minister Imran Khan was asked what kind of relationship he wanted from the US. He responded by pointing out Pakistan’s long and storied relationship with China as an example of a successful and mutually beneficial relationship. He explained how Pakistan’s relationship with China, unlike the US was not one-dimensional and built more on trade, respect and mutual cooperation. In doing so he in effect presented the underlying reasons why China is often termed as Pakistan’s ‘All-Weather’ friend.

In fact, the very notion of China being an ‘All-Weather’ friend is borne in contrast out of the US’s more fair-weather and sporadic approach to Pakistan. This approach has been evident in Pakistan’s long-standing complaints of how after helping the US repel the Soviet Invasion of Afghanistan, Pakistan was left to pick up the pieces as the US unilaterally withdrew from the region, leaving behind a devastating humanitarian and political crisis. The last two decades’ war on terror for which Pakistan once again allied with the US is also following a similar blue-print, which the Prime Minister made clear was an example of history repeating itself. In defining his country’s most recent reservations against the US, he made it clear that Pakistan would no longer serve as a hired gun for the US, and desired a more equitable relationship based on mutual respect.

Considering how Pak-US relations have deteriorated over the last few years, the Prime Minister’s remarks come as little surprise to observers who have witnessed this uneasy partnership throughout its peaks and troughs. Yet, what’s striking is the fact that this is perhaps the first time that a Pakistani head of state has directly presented its relations with China as the ideal blue-print for which to measure the long and troubled history of Pak-US relations.

In contrast, the official narrative ascribed to the Pak-China bilateral framework, has stood out amongst diplomatic and policy-making circles due to the broad poetic license that has more recently been attributed to it. The oft-quoted phrase of how Pak-China Friendship is ‘higher than mountains, deeper than the ocean, stronger than steel and sweeter than honey’, has been repeatedly used by officials representing the highest levels of government, from both countries to emphasize the far-reaching significance of their bilateral relations.

This includes their significance both within a more localized context, as well as a broader more regional context as evident in the $62 billion China Pakistan Economic Corridor (CPEC). The corridor which promises an end to Pakistan’s development woes focuses instead on fostering peace and stability through economic growth and development. This is as opposed to the more security and strategically driven approach of the US, which has seen the region become increasingly violent and militarized. It is based on this difference that CPEC has been widely hailed as a viable solution to the relative instability and insecurity that has for years characterized the South Asian region.

However, over the past few months, Pak-China relations have themselves undergone an uncharacteristic period of friction and uncertainty. Interestingly, one of the major reasons behind this friction has been none other than the newly elected Prime Minister himself. As part of his anti-corruption campaign rhetoric leading up to the elections, he had promised greater over-sight and transparency with regard to Chinese investments under CPEC. This came at a time where growing trade and economic tensions between the US and China, had led to greater scrutiny and broad reservations against China’s rising influence the world over. Calls to re-evaluate China’s investments were echoed across countries such as Malaysia, Sri Lanka, Myanmar and Kenya; with allusions to unsustainable loans and China’s ‘Debt Trap Diplomacy’ doing the rounds amidst key influencers and policy-makers across the globe. Pakistan’s rising debt too was linked to CPEC projects by none other than the US secretary of State, who had ruled out the possibility of US loans being used to bail out Chinese bond-holders in Pakistan.

Prime Minister Imran Khan has since gone to great lengths to dispel such sentiments, as was evident in his official visit to Beijing last month. In all his statements, he has been careful in acknowledging the benefits of China’s strategic partnership with Pakistan, and has lauded China’s tremendous achievements in eradicating poverty; something that he wants to emulate as part of his own government’s policies. His recent statements in the above-mentioned interview too, are based in part on these same reasons.

Taken together, the PM’s statements thus present a clear and very public declaration that the Pakistani government is quite willingly choosing to side with China in the ongoing US-China economic rivalry. Unlike before where Pakistan had to carefully balance its strategic relationships between China and the US, China’s grand overtures and the US’s more inward focus on ‘America First’ have accelerated Pakistan’s gradual tilt towards China. With the US-China rivalry currently seeming far from any sort of resolution, Pakistan’s need to pick a side in favor of the other represents a clear indication of which side the government believes its long-terms interests lie with.

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South Asia

Sirimavo of Sri Lanka: Refocusing on World’s first Women Prime Minister

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Authors: Srimal Fernando and Pooja Singh*

In 1970s, there was a time when Sirimavo Bandaranaike caught the global attention and her premiership was one of the most momentous times in Sri Lanka’s political history. On 21 July, 1960, she became the first ever woman Prime Minister of Sri Lanka (formally known as Ceylon) and the world. Even today nearly half a century later, Sirimavo’s name is remembered among the thousands of Sri Lankans and among the Sri Lanka Freedom Party (SLFP) supporters. Thus the Sri Lankan voters expectations about Sirimavo rose within no time after the unfortunate assassination of her husband S.W.R.D. Bandaranaike in 1959.

In the summer of 1970, the Sri Lanka Freedom Party (SLFP) , the Lanka Sama Samaja Party (LSSP) and also the Communist Party (CP) was sweeping electorates in a general election by winning 115 seats out of 151. In essence, Sirimavo’s administration presented far-reaching constitutional and socio-economic reforms that were suitable for a small island nation.  In fact Mrs. Bandaranaike handled the transfer of island nation becoming a republic under a new constitution tactfully. In this context, Dr. N.M. Perera, Felix Dias Bandaranaike, Philip Gunawardena was some of the primary shapers of her administration. At that time, unlike her predecessors, the former premier showed great interest in developing cement, paper, steel and chemical industries. Despite promising signs under her leadership, uneven inequalities from 1948 to 1970 and economic stagnation created tensions within rural masses. Surprisingly, a coup in 1971 by the southern insurgents headed by Rohana Wijeweera, the leader of the Janatha Vimukthi Peramuna (JVP) shattered the hopes of Bandaranaike government for a short time. Although coup was unsuccessful because of Sri Lanka’s military support to premier’s rule.

It is noteworthy to mention Sirimavo era solidified Sri Lanka’s foreign policy in the coming decades, which set the stage for the island to increase bilateral ties with India and China. In fact, Indian Prime Minister Indira Gandhi was a trustworthy friend of Mrs. Bandaranaike. This period also saw the closest bilateral relations between the neighbouring countries. Especially, Mrs. Bandaranaike was a giant among Non-Alignment leaders. In the summer of 1976 at the fifth Non Aligned Movement (NAM) summit held at the Bandaranaike Memorial International Conference Hall(BMICH) in Colombo, Mrs. Bandaranaike stated, “The non-aligned countries should fight against injustice, intolerance, inequality, old concept of empire and intervention.”

On the domestic political scenario, the opposition leader J.R. Jayewardene and his deputy Ranasinghe Premadasa had been outspoken critics of Sirimavo Bandaranaike policies. When she lost 1977 general elections, it was extremely a difficult situation for Mrs. Bandaranaike and for the Sri Lanka Freedom Party (SLFP) coalition partners who had developed a remarkable sense for socialist political culture within the multicultural society in  Sri Lanka. Seven years later Mrs. Bandaranaike had lost her civic rights, the party hierarchy nominated veteran SLFP stalwart Hector Kobbekaduwa for the forthcoming referendum. The Referendum results did not reflect the true situation. Then while the    atmosphere began to change in the island country after the eruption of ethnic conflict and signing of the Indo-Lanka accord. This scenario caused strong anti-United National Party (UNP) regime change feeling.  In a closely fought presidential election in 1988, the SLFP leader Mrs. Bandaranaike lost to UNP presidential candidate Mr. Premadasa. There were no immediate solutions to the crisis in Sri Lanka under Premadasa’s presidency.  Hence  in  the South, due to the JVP uprising and the Tamil tiger (LTTE) attacks in Northern and Eastern provinces, conditions inside the Island nation was going from bad to worse.

At the same time, the crisis in the Sri Lanka Freedom Party (SLFP)  came to surface and the party was divided into several wings.  Thus, the time had come for SLFP party unity for doing away with the seventeen years United National Party (UNP) rule. Mrs. Bandaranaike was convinced that it was time for a new generation of party leadership. She opened the corridors of political power to Chandrika Bandaranaike Kumaratunga, Mahinda Rajapaksa, and Maithripala Sirisena who later became presidents of Sri Lanka. In late years, Mrs. Bandaranaike was a prime minister for a short time from when her daughter Mrs. Kumaratunga was president. On the Foreign Policy front she reworked strong bilateral ties with India and China and her policies remained important for Non Aligned Movement (NAM) nations and for India  and China ties with Sri Lanka. After more than fifty years of service to the Sri Lanka Freedom Party (SLFP), to the nation many of the Sri Lankan’s were finding it hard to come to terms with Sirimavo’s sudden death on 10th October, 2000.Late premier Sirimavo Bandaranaike’s pragmatic policies mattered very much for the South Asian island nation, the region and to the world at large.

* Pooja Singh, a scholar of Masters in Diplomacy, Law, Business at Jindal School of International Affairs, India.

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Indian Human Rights violation in Kashmir

Adeela Ahmed

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In International conflict management, the models and approaches to solve the deep-rooted issue are vital and applicable but these models became fragile if any one of the belligerent states lacks the intent to solve any tangible solution. India rigid stance of avoiding any Peace Talks on Kashmir issue is the main irritant between rivalries which derails the conflict resolution. It is far important for rivalries to elucidate the dispute to move ahead.  Because it is ultimate truth that all the conflict and crises have an alternate way of tenacity.

In South Asian framework, Indian strategic ambitions are the main stumbling block in the way of Kashmir Resolution. While in the Global framework, major powers like Russia and USA military and then ideological interests compels states not to play any significant role for the resolution of Kashmir conflict.

Kashmiri Freedom Movement started from 1931 and still in 2018 it is constantly being exploited in the hands of Indian aggressive leaders. From 87 years, Indian barbarism is not a top-secret. Indian wanted to sideline and suppress the Kashmir issue in the prism of their national interests but the issue will remain alive with determined efforts of the Kashmiri and Pakistani people, human right activists, political and military leaders. The issue of Jammu and Kashmir must be resolved as per aspirations of Kashmiris.

Pakistanis and Kashmiris across the world chronicled their protest against Indian brutality and illegitimate occupation in Kashmir. Struggle for freedom of Kashmiri people will one day succeed by the grace of Almighty Allah.  Each day is like a black day until the resolution of Jammu and Kashmir with the consent of Kashmiri people.

There are many pragmatic choices for the resolution of Kashmir issue but the real dilemma is that India is not ready to come on Table for Peace talks due to their hegemonic ambitions. Recent Talks at UNGA 73rd session was also negated by Indian. As a rational nuclear state, they should realize that Kashmir is a nuclear flashpoint. Both the nuclear states should talk constructively and negotiations are the only way forward in which mutual national interests must be considered.

In 1948, it was India who went to United Nations and then it was decided unanimously a plebiscite in Kashmir. It is the right of every Kashmiri to decide his destiny indigenously. As there are no law enforcement agencies of international organizations to implement its resolution but the role of P-5 states can facilitate for resolution. Till now no such role is played by them but the importance of UN forum cannot be negated as states like Pakistan can raise their voices at international level against Human Rights violations.

The Indian occupational forces under the cover of Armed Forces Special Protection Act (AFSPA) and other black laws frequently involve in religious cleansing of Muslims. After the martyrdom of Burhan Wani in 2016 Indian forces started using most dangerous weapons of pellet firing shotgun. Where are Human Rights Law against the killing of innocent Kashmiris? The lives of Kashmiris are as important the people killed in 9/11, London attacks, in Mumbai attack or a single Indian soldier. The US fought the war on terror and still engage in most complex war but What about Terror of India in Kashmir. Kashmir needs not to be forgotten at all. US Secretary of State Michael Pompeo asked Pakistan to abandon terrorist attacks into India but from Where Kashmiri demand Freedom. The US needs to let her interest go, at least for once, to settle the Kashmir issue. For Pakistan, it is not just a matter of territorial importance but relates to the lives of Kashmiri people who are suffering at the hands of India’s state terrorism.

Modi government is supporting to have Direct Talks with the Taliban, but when it is about Kashmir, they became silent. There is a dire need for the Indian government to review their mindless Kashmir policy. Kashmiri people must be given the right of plebiscite to decide them their destiny. Pakistan’s foreign policy is on right direction that the tools of diplomacy need to be improved for better results and peace process is the only way forward.

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