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

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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

“Haqeeqi Azaadi” or “Political Invasion”?

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You call it a “Long March” or an “Azaadi March” or a “Haqeeqi Azaadi March” and lastly according to some people “Political invasion of the capital”; whatever attempt it may be, the impact of this “Long March” will not be “Short” at all. Seems like history is repeating. Yesterday, it was PTI, later it was TLP, then JUIF, PDM & now again PTI. This reminds us about a Supreme Court’s historic judgment on Faizabad Sit in by Supreme Court, which is quite relevant again in these crucial times. The historic judgment of Supreme Court on Suo moto quotes that “The leaders of the dharna intimidated, hurled threats, abused, provoked and promoted hatred. The media provided unabated coverage. Inflammatory speeches were delivered by irresponsible politicians. Some unscrupulous talk-show hosts incited and provoked citizens.” Isn’t the situation once again similar? Doesn’t it seem like history is repeating? Few analysts consider it to be a worst kind of situation.

Supreme Court writes in its judgment that “the freedom of speech and expression and of the press are fundamental right. However, these rights cannot be used to denigrate or undermine the glory of Islam, security or defence of Pakistan, friendly relations with foreign States, public order, decency or morality or in relation to contempt of court, or commission of or incitement to an offence.  He categorically mentions that “PEMRA Ordinance mirrors the restrictions as set out in Article 19 of the Constitution and further prohibits broadcasts which are, “likely to create hatred among the people or is prejudicial to the maintenance of law and order or is likely to disturb public peace and tranquility.” So, Supreme Court has already given clear instructions that if some event is likely to disrupt peace and tranquility, media broadcasts can be prohibited.

Insiders say that we are in a dead end and this is the most crucial time of history for Pakistan, especially when the economic fate has to be decided by IMF on 25th May when Imran khan marches on Islamabad. So let’s playout the possible upcoming scenarios which political stakeholders may have to consider;

  1. Marching towards Islamabad with huge crowds is one thing but forcing a government to dissolve assemblies with this crowd is another thing. Imran Khan very well knows this is a do or die situation for his political career as well. He knows his March will only succeed if he can force an early election.
  2. Bringing larger mobs to Islamabad will only be fruitful if there is some kind of disruption by the present government or by the PTI itself. IK knows that a prolonged sit in without happenings in the red zone won’t be impactful.
  3. PTI leaders have been repeatedly convincing people including government employees, Army officers and police to bring their families in their Haqeeqi Azaadi March. The question which arises is that “Why IK doesn’t bring own family members to join the “Jihad” or “Haqeeqi Azaadi”?
  4. IMF has to take crucial decision on Pakistan’s economic fate. Without an IMF Package, a Srilanka type scenario may arise. The decision will come on the same date as of long march, on 25th May. This is a do or die situation for Pakistan’s economy. So the leaders of this March should definitely come with a futuristic economic plan and tell the masses how will they get rid of this dire economic situation.
  5. While Srinagar Highway will be full of Marchers led by the so-called Ambassador of Kashmir, a big decision is expected to come from Srinagar about Yasin Malik. Unfortunately, it is expected that his sentencing maybe announced on 25th May as well.

The government also has limited options. They are arresting leaders of PTI. They are raiding houses in their own panic mode which will further incite the situation. The removal of fuel subsidiary has become inevitable and when it happens it will be the most unpopular decision. Rising, Inflation will cut purchasing power. Finalization of IMF program has brought them to a dead end.

The dread is in the air. 25th May is around the corner. It is Crucial. It is Do or Die for Pakistan. We must fear!!

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When Politics turns Personal; The Toxic Allegations & Accusations become a Norm

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Image source: timeofpakistan.com

There is something happening beneath this political turmoil which is NOT looking good!!

Whenever Political landscape turns into a Personal battleground, defeats become unacceptable. These past few days are a perfect case study to see that how Political elite in Pakistan has done whatever it took it to stay in power. In this power grab scenario, there could be numerous losses including the integrity of institutions. We have unfortunately entered into a very dangerous phase, where some political stakeholders have put all stakes at risk, where they have stretched their limits beyond a constitutional limit, all to gather mass support, all to stay in power and avoid defeat. Is it a threat of losing power? Is it a double game? Is it a practical hybrid war we are fighting?  Whatever it is, it doesn’t seem to be good. All is at stake, all is at risk and all is toxic.

As if the political temperature was not noxious enough, Shireen Mazari Saga took place. Once again, accusations, allegations and assumptions started pouring in against the state institutions. Soon after her arrest, her daughter, a lawyer herself Imaan Zainab Mazari alleged that her mother was beaten by male police officers during the arrest. But few minutes later, a video clip surfaced that showed clearly that her mother was arrested by Female Police officers in broad daylight and as per the law. Lie number 1 of the daughter stood exposed. Within moments, without any cogent evidence the lady, known for many controversies in the past targeted state institution for such an act, although the anti-corruption already had taken responsibility of her arrest.

Abuse of power can never be tolerated, regardless of who it targets or from where it emanates. This mantra is true and everyone has an equal belief on it but let’s take a deep dive to see that how politics turned dirty in this case, how blame game took place and how this entire episode was used as a tool to churn propaganda against Army leadership and Armed Forces.

1. The anti-corruption police had arrested Shireen Mazari and she herself accepted that Prime Minister and Interior minister were responsible for my arrest. But the mother daughter nexus brazenly started blaming institutions without any solid evidence. Shouldn’t there be an inquiry on this too?

2. PTI was always of the opinion that why courts were opened mid night to send IK packing while he wasn’t listening to anyone however when same court gave a verdict in favor of PTI ex minister, late night, it was celebrated and much appreciated by Shireen Mazari & IK who have been spearheading anti judicial tirade until recently. Isn’t it blatant hypocrisy? Judicial inquiry has been ordered by the Court which is a positive sign, but the serious allegations which Mazari nexus have raised must also be inquired during this newly formed judicial inquiry. Should the Judiciary not question them on hurling these baseless allegations?

3. The present government, whose Police itself arrested Shireen Mazari disowned this attempt. Attorney General displayed his ignorance about the matter in front of the court. So, somehow the government created this impression in the public eye that they are not to be blamed for the arrest of Shireen Mazari. Was it a double game? Or a deliberate effort to discredit institutions?

Pakistan is already facing serious economic downfall, political uncertainty and civil strife. PTI has also announced Long March to Islamabad on 25th May which is likely to further exacerbate already fragile political and economic instability. It has become quite evident now for achieving petty political ends, our political elite has no serious resolve to address the crisis confronting the country. Country is being deliberately pushed to limits of economic and political dead end. The political immaturity and lack of vision to handle the crisis situation is also hurting the repute of institutions amidst internal political wrangling. If political leadership doesn’t come to grips of the critical situation prevailing which is likely to aggravate further in coming days, people of Pakistan in particular and the country in general are likely to suffer unprecedented damage. Political elite must put its acts together and steer the country out of prevalent political and economic crisis by showing sagacity and political wisdom until it’s too late.

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Accusations to Acknowledgement: The Battle of Article 63 A

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The weather is heating up. As the May is ending, Political temperatures are soaring. The fate regarding the country’s political and economic stability will be measured in the upcoming days. Earlier, PDM built momentum by taking on institutions. Maryam Nawaz raised the temperature by targeting key personalities and institutions. Allegations were bursting against the institutions in all dimensions. Today, we witness reversal of roles. Accusations have been outflowing in every Jalsa by PTI. But now suddenly, the “accusations” turned into “acknowledgment”. “Complaints” started transforming into “Compliments”. Is it the change of narrative? Is it another U-turn? Or is it the restoration of confidence in the institutions? Where will this chaos end?

The Supreme Court’s “decision” or as they say “opinion” or “binding” on Article 63 A has raised some pertinent questions on the status of CM Punjab election? In the interpretation of Article 63 A of the constitution, the Supreme court categorically condemns the practice of horse trading by calling it “a cancer afflicting the body politic”. Supreme Court in its decision of 3-2 rejected the vote count of these dissident members against the party directives. So the future of the Chief Executive of Punjab is now under threat because it is contrary to what happened in National Assembly. The political instability continues and the situation is messy.

In light of this verdict, Hamza has a support of 172 MPAs in Punjab assembly but at the same time, he also has 4 dissenting members which draws the figure to 168. Now further moving ahead, PTI and alliance also has a collective figure of 168 votes minus 21 dissenting members. The situation here in Punjab is way too complex now. A support of 186 members is required for a clear majority in Punjab assembly to formulate a government. This current Punjab government can either fall through a governor led vote of no confidence or a Supreme court order. The governor even has a right to dissolve the assembly with his discretionary powers according to Article 112 (2) of the constitution. Supreme Court has already made its decision on cross voting against Party fiat.  Now legal experts are interpreting the decision in their own dictionaries. What will happen in Punjab? What will happen on the federal level? Will there be an election call? If so, what will be the care taker setup? Will there be a fresh mandate? Who will make the hard economic decisions?  Lot needs to be answered in these crucial times.

From “My judges disappointed me” to “Thankyou Supreme Court”, a lot has happened and a lot is ready to take place. Islamabad is full of gossips, interpretations, whispers and predictions these days. There is something seething under this political turmoil. The Red zone is under a lot of pressure whether politically or economically. Pre – Elections, Elections and then Post elections, we have a lot of consequences of a lot of hard decisions. But hard decisions need to be taken. Question is who is ready to make the hard choices? Be Afraid!!

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