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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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A Review of the Draft National Education Policy 2019

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There is an urgent and imperative need to rekindle dialogue on the shaken education structure in India among politicians and decision makers. While there is a proliferating realization to the finite financial limits of ‘improving literacy rate’, there is a detrimental lack of alternative discourse on the way forward, a futuristic dialogue on the achievable. It is rightfully said that a life without education is like a boat without a rudder. While the solutions to the problem may seem simple to layman’s eyes, it is as multifaceted and dynamic from a microscopic lens. This paper will attempt to review and critique the education system in India in light of the recent National Education Policy 2019 developed by the ministry of human resource development that seeks to propose transformative changes.

The field of education essentially is viewed through a narrow outlook of having normative or static foundations that can be generalized. This is however far from reality. Education system and structure is highly contextual and subjective to the jurisdiction it is studied in. While it is necessary to take cognizance of the fact that metamorphic changes, if any, are gradual, access to basic quality education for many is a far cry. India demands a comprehensive nationwide policy such as this and more importantly the implementation and enforcement of the same. The paper shall enumerate few highlights of the policy as no specific selection can paint an accurate picture of the well-integrated and comprehensive policy.

One of the fundamental solutions to the policy focuses on a key demography to foster a massive positive multipliers effect on the Indian society. It promises high quality education and childhood care for all children between the age bracket of 3 to 6 years by the year 2025. This encompasses the holistic development of the child including healthcare, nutrition and skill development. The vitality of the early years of brain development have been consciously highlighted in the past few years with growing awareness and study in this field.

It is essential that we tackle the grassroots of the issue being the quality of teachers and their accessibility. Professional teacher education and improvement of the quality of the educators is vital to better education and hence multidisciplinary programs for teachers are proposed to be included in large universities. Weak educators lead to weak professional in all fields. A four-year integrated stage – specific B.Ed. programme has been proposed by the HRD ministry and the Draft Committee alongside a restructure of the technical and medical education in the country. It outlines a proposal for the exit examination for medical professionals to create a robust filtering system to enable qualified and erudite individuals into the medical industry, enabling them to do justice to their respective professions.

Back to the fundamentals, the policy seeks to achieve foundational literacy and numeracy through a spectrum of programs and measures that have been carefully drafted and articulated to promote the same. Correspondingly, the draft policy aims to transform the pedagogical structure of the curriculums in the Indian education system for more effective learning that holistically encompasses cognitive, social and emotional development. The learning model will serve equitable emphasis on all fields and subjects, inherently leveling the balance of importance in academic and vocational cum co-curricular training. The examination structure within the Indian education system has for long been critiqued as counterproductive and toxic. It separates the individual from the real process of learning. With that in light, the policy proposes a complete radical revamp of the exam structures to relive the stress factor, strive for improvement in the learning pursuit and assess real learning.

The political and governmental handhold must undoubtedly begin with a substantial increase in the public investment for the normative expansion and vitalization of public education at all levels. While the policy extensively focuses on amending the tangible flaws of the education system in India, it leaves behind the lived reality and cultural context. I believe that it is far more fundamental to break the stigma that revolves around educating people and address the deterrents to pursuing education. The cultural withdrawal of the reluctance of educating girl children and women in rural spaces is a problem that can’t merely be broken down through financing but through a cultural shift in mindset and an awareness of its criticality. Similar is the case with low income workers such as farmer, plumber and technical workmen that seek to pass on the profession to their heirs under the assumption of retrieving faster interest on their investment of time as opposed to the uncertainty that comes with a hard earned financial investment on poor quality education.

Another cultural adaptation to the policy must be vocational categorical training for specific target groups that diverge from the mainstream education such as training of young mothers or single parents in not just rural but also urban spaces. Finally, the indestructible caste system that is simple inseparable from the education system. The reservation system and its debate has been prolonged for decades and a cause for plentiful havoc uprising in urban spaces as merit seeks to triumph status. This is however often shunned through non-discrimination policies but is far more complex than meets the eye.

The crux of the situation in India is the mismanagement and ill balance between the supply and demand of educational resources in the country. There seems to be a wide gap between the allocation of financial expenditure by the government and the actual tangible change it has created in the recent years. Most importantly, a contextual negligence of tackling issues through the lens of different perspectives, actors and stakeholders. India is not necessarily a resource deficit nation, rather the lack of monitoring and utter negligence of the resource management consequently traps many regions of the country under illiteracy. Future development and economic growth of the nation calls for immediate action and a microscopic outlook of the issue by state actors. To deduce, the policy aims at addressing the diverse plethora of needs of multiple stakeholders in a harmonious manner with the goal of providing quality education to all.

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The Torn Red Carpet: Welcome to Nepal in 2020

Sisir Devkota

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In Google’s search rankings, the official website of project Visit Nepal 2020; comes second. Travel agencies in Nepal have replaced their landing pages at the expense of the overall legitimacy of the most genuine online resource. There is a wealth of videos shot in and about Nepal in Youtube; from ticketing companies to vloggers, visiting Nepal in 2020 might entail different things for various people. However, Mount Everest is not getting pink every passing day; the year 2020 will comfortably succeed the prior geologic timescale. All is not lost if one does not make it to Nepal next year. Hence, why the calling?

Across the world, nation branding for tourism is not a new catch. Egypt, Bolivia, Holland and Guatemala, advertise themselves with their official names. For others, a well thought phrase follows the brand image. Maldives-the sunny side of life, Imagine your-Korea, Belize-is closer than you think are other examples. For the rest, global events, does the work. Visit Nepal 2020 sounds the most ambitious of all; despite of less thoughtful investment over the slogan, it is clumsily competing with the 2020 Tokyo Olympics, across internet search engines. A lack of strategic branding can cost an entire project. Hence, why the ignorance?

As much as the slogan promises for a great experience, things are not quite ready for the incoming tourists. A national plan aimed for the visit year has stalled and stakeholders are looking for a safe landing. As long as the tourists arrive, Nepal will make money in 2020. Even though farsightedness is out of capabilities, stakeholders are not promoting the false promise; instead, Nepal’s promise has been promoted wrongly. Nepal is one of the poorest nations in South Asia and the economy largely depends on salaries from abroad. It does not take much to comprehend the economics, the 2020 project, is a cash cow for a reclining economy. For all the wrong reasons, Nepal is calling for a temporary settlement. One-step at a time, for now, tightening up for the next year only.

Start a business in Nepal 2020. Explore Nepal in 2020. Seek opportunities in Nepal 2020. Beware of money sucking agencies and institutions, when you visit Nepal in 2020. Nepal’s southern neighbour, India, invites entrepreneurs from all over the world; however, Make in India, has not gained steam, like once anticipated. The think-tank behind Visit Nepal 2020 have lost an edge over possible opportunities; scaled business policies are missing from the project structure. Moreover, Visit Nepal 2020 sounds like a welcome for the newcomers, but history suggests that, incoming tourists are largely returnees, thanks to majestic natural richness.

“Visit Nepal 1998-Once is not enough”, was largely successful in terms of arriving numbers; however, after work has been a sorry state of affairs. Unsurprisingly, if Nepal were not enough at once, there would not have been the need for a visit year, two decades later. Therefore, Visit Nepal 2020 is a re-launch, from the supply perspective. For anticipating visitors, this information seeks responsibility. The visit year would only succeed whilst bottom level stakeholders would benefit from spending. In addition, if the economy manages to thrive from the revenue generated in 2020, it would largely be successful. It is another misconception that recycling slogans would lead to the same result. Local suitors in Nepal would be most excited; for them, it is another chance to rekindle with international visitors. Technology and social media will make the difference; at last, Nepal is waiting to stamp its tourism potential.

Visit Nepal in 2020 for lifetime experiences. Visit Nepal later again for unlimited life experiences. Then, repeat.

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Sri Lanka Appoints New Minister for Foreign Relations

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Sri Lankan President, Gotabaya Rajapaksa appointed Dinesh Gunawardena as the Minister of Foreign Relations (Picture source news .cn)

The newly-elected Sri Lankan President, Gotabaya Rajapaksa appointed Dinesh Gunawardena as  the Minister of Foreign Relations after his  Presidential election in 2019.  In addition to Foreign Affairs, Dinesh Gunawardena was also appointed as the Minister of Skills Development, Employment and Labour Relations. The new foreign minister  Gunawardena  hails from a well known political family in Sri Lanka .His father Philip Gunawardena   is a famous national hero known as ‘the Father of Socialism’. Gunawardena  a  graduate  from the University  of Oregon in the US, entered politics in 1972. In 1983 as  the general-secretary of Mahajana Eksath Peramuna’s (MEP)  he entered Parliament in a  by-election held in Maharagma.  He  is well-known as a  long-standing parliamentarian and has served as a minister several times since the mid 90s.

The new  Minister of Foreign Relations Gunawardena  is  supposed  to  implement a friendly and Non-aligned Foreign Policy.   In a recent newspaper interview he stated  “Sri Lanka will have a strict neutral foreign policy where it will strive to have only friends and not foes among the global community”(Sunday Observer,2019).In this context there  is a history to this non-aligned policy.     At the outset, Sri Lanka was a founder member of the Non Aligned Movement (NAM).  As part of this approach, the new  Sri Lankan government had outlined in the  manifesto how the  presidency would implement the Foreign Policy over the next five years. The   manifesto mentions a key phrase “Friendly and Non-aligned Foreign Policy .We will not fall on our knees before any country in maintaining foreign and trade relations. We will always be mindful of our national sovereignty and maintain friendly relations with other countries from a standpoint of equality. Our government will restore Sri Lanka’s national pride and dignity”. (Gotabaya Rajapaksa manifesto, 2019)

Minister of Foreign Relations Dinesh Gunawardena assumed duties at the Foreign Ministry on Monday 25 November 2019. While meeting staff members of Ministry of Foreign Affairs the Minister    mentioned that the “Foreign Service is highly regarded and the entire country is looking towards the Foreign Ministry to find solutions for external pressures and challenges”. Sri Lanka being an Indian Ocean island nation strategically located at the international maritime crossroads has significant diplomatic influence with the international community. Therefore Sri Lanka needs a far-sighted foreign policy vision along with well-aligned and sound domestic policies. It is, therefore, vital that the new Foreign minister sets out the country’s position towards Asian, African  nations and the West to ensure that Sri Lanka is able to achieve its foreign policy goals  over the next five years.

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