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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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South Asia

Pakistan at a crossroads as Imran Khan is sworn in

Dr. James M. Dorsey

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Criticism of Pakistan’s anti-money laundering and terrorism finance regime by the Asia Pacific Group on Money Laundering (APG) is likely to complicate incoming Pakistani prime minister Imran Khan’s efforts to tackle his country’s financial crisis.

Addressing the criticism of the 41-nation APG, which reports to the Financial Action Task Force (FATF), an international anti-money laundering and anti-terrorism watchdog that earlier this year put Pakistan on a grey list with the prospect of blacklisting it is key to a possible Pakistani request for a US$ 12 billion International Monetary Fund (IMF) bailout.

A US demand that any IMF package exclude funding for paying off Chinese loans coupled with the APG/FATF criticism, against a backdrop of the Pakistani military’s efforts to nudge militants into the mainstream of Pakistani politics and the incoming prime minister’s mixed statements on extremism, could push Mr. Khan to turn to China and Saudi Arabia for rescue, a move that would likely not put Pakistan in the kind of straightjacket it needs to reform and restructure its troubled economy.

The APG criticism followed Pakistani efforts to demonstrate its sincerity by passing in February the Anti-Terrorism Ordinance of 2018, which gave groups and individuals designated by the UN as international terrorists the same status in Pakistan for the first time.

Pakistan, however, has yet to implement the ordinance by for example acting against Hafez Saeed, a leader of the banned group Lashkar-e-Taiba and the alleged mastermind of the 2008 attacks in Mumbai, who despite having been designated a global terrorist by the United Nations Security Council and having a US$ 10 million US Treasury bounty on his head, fielded candidates in last month’s election.

The APG, which just ended talks with Pakistani officials, has scheduled follow-up visits to Pakistan in September and October to monitor Pakistani progress in addressing its concerns, which focus on legal provisions governing non-profit and charitable organisations, transparency in the country’s beneficial ownership regime and the handling of reports on suspicious financial transactions.

Those concerns go to the heart of the effort by the Pakistani military and intelligence to mainstream militants who garnered just under ten percent of the vote in last month’s election but have a far greater impact on Pakistani politics. The military and intelligence have in the past encouraged militants to form political organizations with which mainstream political parties have been willing to cooperate and establish charity operations that have had a substantial social impact.

Similarly, Mr. Khan, who earned the nickname Taliban Khan, is likely to have to counter his past record of allowing government funds to go to militant madrassas, his advocacy for the opening in Pakistan of an official Taliban Pakistan office, and his support of the Afghan Taliban. His Tehreek-e-Insaf (PTI)-headed government in Khyber Pakhtunkhwa, gave in February US$2.5 million to Darul Aloom Haqqania, a militant religious seminary.

Dubbed a “jihad university,” Darul Aloom Haqqania, headed by Sami ul-Haq, a hard-line Islamist politician known as the father of the Taliban, counts among its alumni, Mullah Omar, the deceased leader of the Taliban, Jalaluddin Haqqani, the head of the Haqqani Network. Asim Umar, leader of Al-Qaeda in the Indian Subcontinent, and Mullah Akhtar Mansoor, Mullah Omar’s successor who was killed in a 2016 US drone strike.

Those may be policies that, at least initially, may be less of an obstacle in assistance on offer from China and Saudi Arabia to replenish Pakistan’s foreign exchange reserves that have plummeted over the past year to US$ 10.4 billion, enough to cover two months of imports at best. Pakistan’s currency, the rupee, has been devalued four times since December and lost almost a quarter of its value.

Chinese loans have so far kept Pakistan afloat with state-owned banks extending more than US$5 billion in loans in the past year. PTI officials said this week that China has promised the incoming government further loans to keep Pakistan afloat and enable it to avoid reverting to the IMF, which would demand transparency in the funding of projects related to China’s US$50 billion plus investment in the China Pakistan Economic Corridor (CPEC), a crown jewel of its Belt and Road initiative.

And that is where the rub is. Despite Chinese officials reportedly urging Pakistan to reduce its deficit, neither China nor Saudi Arabia, which has offered to lend Pakistan US$4 billion are likely to impose the kind of regime that would put the country, which has turned to the IMF 12 times already for help, on a sustainable financial path.

Relying on China and Saudi Arabia would likely buy Pakistan time but ultimately not enable it to avoid the consequences of blacklisting by FATF, which would severely limit its access to financial markets, if it fails to put in place and implement a credible anti-money laundering and terrorism finance regime

Moreover, relying on China and Saudi Arabia, two of Pakistan’s closest allies could prove risky. Neither country shielded Pakistan from FATF grey listing in February. A Chinese official said at the time that China had not stood up for Pakistan because it did not want to “lose face by supporting a move that’s doomed to fail.”

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The problem of pellet guns in Kashmir

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Jammu and Kashmir is the only northern state of the Indian union dogged with an overridden unhealthy political atmosphere. The valley of Kashmir is beset with a major governance deficit which has given renewed impetus to the dissenting voices of the masses day in and day out. Dissent is the hallmark of a democracy which acts as a medium for the expression of the masses against the system. There are certain rights and duties guaranteed by the Indian constitution for the citizens, including the right to freedom of expression and right to life. Caught in the quagmire of a political crisis that has deeply permeated the society, the people in Kashmir from time to time vent up their dissent. Hartals are the tools for the masses through which they ventilate their pent up emotions. Kashmir is not a different case. It is also amuck with crisis and caught in a looming distress day in and day out. Kashmir is the most sensitive zone of the whole Asian sub-continent, where situations turn awry with the passage of time, like the seasons of the year and is the only state of the Indian Union where there has been a reckless use of the pellet guns without any regard for the precious life of the common man. This is a sort of dichotomy.

The use of pellet guns is a major problem which has not only maimed, blinded and killed the masses, but also shaken the collective conscience of the people, who have fallen prey to a different approach of dichotomy of the government. The killing of militant commander Burhan Wani in 2016 brought about a volcanic eruption in valley which not only deteriorated the situation in Kashmir, but also increased the massive alienation of the masses. The waves of grief and anger against the day-to-day killings and maims that the people felt increased with each passing day. In order to control the crisis, the security agencies used the deadly pellets which caused heavy damage to the sufferers. More than 1200 people lost their vision in 2016. According to a report of State Human Rights Commission (SHRC), more than 75% people suffered injuries due to pellet guns, ranging from minor to major in 2016.There was a heavy loss of life.

Although small in size, these black metallic balls have deteriorated our young generation. The use of pellet guns has wreaked crisis in Kashmir. For the security agencies, it is meant to disperse the crowds, but, for the common masses, it is a problematic affair. Pellet guns are pump-action shotguns which fire a cluster of small, round, metal pellets with high velocity over a broad range.

Recently, after the killing of a militant from Pahalgam area during the anti-establishment protests, a number of people were injured due to pellet A nurse working in the same area personally told me that we healed at least 100 plus pellet injured victims. The bloody Sunday of this year’s April and the subsequent clashes of the protestors with the security agencies left many injured, with multiple cases of pellet injuries to the eyes of the protestors.

Naseer Ahmad Bhat of Seer Hamdan, Anantnag was killed by the security forces during the post-Burhan phase of 2016 protests in Kashmir. He was an able worker and a good cricketer who fell silent to the pellets. Not only the collective conscience of the people was shaken, but also a state of disparity ensued. These deadly pellets have not even spared the school going children and snatched the power of seeing of the victims. Insha, a pellet victim who passed her matriculation examination last year despite odds is an inspiring hope for the likewise victims.

Pellets cause a number of biological ramifications in the victim, like the loss of vision, the state of paralysis, in case, the damage is caused to the spinal cord, defacements, and death in case of damage to the vital organs of the body, like, heart, kidneys, lungs, brain, etc. Moreover, the pangs of guilt that a victim suffers in silence dishearten one and all. The use of pellet guns as a crowd-control method during protests, whether in case of cordon and search operations (CASO) or common protests has added a volley of questions to the psyche of the common man? Being a part of the Indian union, that two acing the crown, Kashmir has been treated otherwise all through the passing times. People have got million queries, but, there are no solid answers to their problems and subsequent tactful solutions.

The substitution of pellet guns with PAVA shells can in no way control the crisis. The way people of other parts of the country are treated should form a close semblance in case of protests in Kashmir. Why the security forces are using pellets and bullets against the people whom the system claims with a sense of belonging. There can be other alternatives, like the use of water cannons without any damage and subsequent ensuing crisis that engulfs the society and creeps the psyche of the common men. If this is the notion of the system to punish dissent, then dissent itself takes a u-turn of additions and alterations with the passage of time. The bleeding valley is giving a close call for one and all to unite and ensue a state of peace and order. There is an urgent requirement of the administrative and political will to stop the use of pellet guns in Kashmir.

Whatever is happening to the people of Kashmir has not been experienced by the other people of the country. After all, it is a question of humanity. People suffer out of the ways as circumstances decide or may be destined otherwise. But to expect a peaceful valley without the intervention of a political will would be an underestimation of statements. There is a dual intolerance in Kashmir, one from the people and next from the system. The systematic targeting of the protestors from a point blank range irrespective of regard for the human life has shattered several families in Kashmir

Kashmir is passing through the phases of testing times with each passing day. The ugly turn of the situations and recurring events and the amateur dealing of the same has created an unhealthy atmosphere everywhere, where people have lost faith in the governance systems. The safety and security of every Tom, Dick and Harry is the looming question of the hour. Exits from dwellings and adieus from home don’t guarantee the safe return of the leavers. The interlocutor of the centre in vale, Mr. Dineshwar Sharma once reiterated that, ‘the priority is to prevent Kashmir turning into Syria’. The imbroglio has crippled the educational scenario, down slowed the economy, increased the unemployment, but, above all, the ultimate question is the redressal of the problem at stake, which for God sake can erupt into a lava-laden volcano one day and engulf the whole peace, stability and order of the South Asia, if not tactfully handled in the current times by the government.

The victory of BJP at the centre with the thumping majority after the 2014 Lok Sabha elections with the slogan of ‘minimum government, maximum governance’ falls short of words and has partially failed in the state of J&K.The killings of the common masses are in no way remedies to the political ailments. There should be the ultimate regard for the human lives. Why has the blood of the people become so cheap .When will peace return to the valley of Kashmir? The government of India had constituted an expert committee in July 2016 to explore other possible alternatives to pellet guns as non-lethal weapons. Although, the committee submitted its report and the recommendations were taken into account by the government for implementation. But, what happened afterwards lies in the public domain for discussion. The use of pellet guns is tantamount to the violation of rights of the people.

In order to direct the valley towards the state of peace and development, the role of multiple players of India, Pakistan and Valley is necessary. This way the government can make a significant contribution in the restoration of normalcy. The need of the hour is the unity of all the stakeholders of the society, like government, non-governmental parties, NGO’s, etc. to help these pellet victims via financial or other means.

Although, there has been a strong criticism of the use of pellet guns not only at the local level ,but also at the international level, but the main part of the problem resolution lies with the government of India and the state. Although, much has been said and written about the people of Kashmir with the flow of waters of the river Jhelum, but the stability of the region is a farfetched dream. Here, comes the role of the government into play. The use of pellet guns against the dissenting masses has wreaked havoc and wounded the collective psyche of the people, particularly those who have lost their near and dear ones due to the deadly metallic balls. Those who have fully or partially lost the vision and are living in dark suffer in silence. The government should review the situation and put a full stop for the future use of pellet guns. Those who have lost their dear ones should be financially compensated or by provision of bread and butter. However, the clarion call of the people is the complete ban and stoppage of these pellet guns in order to prevent the further damage and restore the faith of the people in the system. The government of India should pass a resolution to put a terminal pause to the use of pellet guns in the state of Jammu and Kashmir.

The vital task for the current times is to build a consensus for the total pellet ban. The use of non-lethal methods by the security agencies like water cannons could be the best alternatives. This will not only restore the faith of the people in governance, but also generate a feeling of belongingness among the masses. The bruised scars of the pellets have defaulted the trust of the people in the political system. Although, the situation is worrisome for one and all, but, in which direction the boat sails lies with the future course of action. After all action speaks louder than the words.

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Pakistan not a Threat for Israel: Clearing Misconceptions

Uzge A. Saleem

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Ever since 1998; the beginning of Pakistan’s nuclear age, the state’s self-defense mechanism has been a source of worry and unrest for India and the US. Both these states never really accepted that a small state like Pakistan could develop the prestigious asset and was now well capable of defending itself against external threats. US opposed the program on the grounds that it had been tested after the signing of NPT and that it is an “illegitimate” program. Their basic concern was Pakistan not being a party to NPT and US non-proliferation efforts failing. India, though very much against the program, could not openly oppose it on the same grounds because its own Nuclear Program had the same issue i.e. it was tested after the signing of NPT and they had also not signed the treaty.

There  are  a  lot  of  ambiguities  surrounding   Pakistan’s  nuclear  program  which  are  there intentionally for the benefit and security of the program and state. However, there is one thing which has been kept very clear since day one and that is the Indo centric nature of Pakistan’s nuclear program. The program was developed because the conventionally strong next door neighbor had developed their program. Pakistan, in an attempt to ensure territorial security, had to develop its own program as well. US, China, Russia, France or the UK were never a threat to Pakistan nor was Pakistan on their attack agenda. India on the other hand was in close territorial proximity, a historic enemy, conventionally stronger and now also a nuclear power. After evaluating all these factors any national strategist would suggest a nuclear program for Pakistan and that is exactly what the state did.

There have been news in an Israeli newspaper,  Haaretz, that Pakistan is more of a threat to Israel than Iran. This was published on 20 May, 2018. The grounds for this allegation have been identified  as  Pakistan’s  growing  arsenal  and  other  similar  reasons  which  have  always  been popular in the western policy circles. Iran, a conventional enemy, one with which there have been numerous conflicts, has been ruled out as a threat to Israel since they do not have a nuclear arsenal.

However, there are many concrete facts that have been ignored in this propagating debate. For instance Pakistan has had no wars with Israel. Both the states have never even been on the verge of an all-out war. The states have never even had a conflict that could’ve led to war. Although Iran does not have  a nuclear arsenal at present but that did not stop the states from indulging into conflicts before and although initiating a nuclear war might not be a possibility for Iran but a conventional war is very much within their skill set.

Pakistan is already indulged in a two front defense strategy on its eastern and western borders. The Taliban threat from the west and the ever present Indian threat from the east, particularly along the  line of control is already consuming most of the state’s energy, attention and resources. Under such circumstances, jumping into any sort of venture as far as Israel without any apparent or direct conflict seems like an amateur move which is not expected from Pakistan whatsoever. If any linkages are being made based on the fact that Iran and Israel have cordial ties then they are weak to begin with. On the other hand India and Iran have more than friendly ties and India’s nuclear arsenal is growing rapidly with the US help. However, this does not mean that just because India is a nuclear state and a friend of Iran, it will be inclined to attack Israel.

Pakistan’s nuclear program is solely for the safety and security of the nation against any external threat.  The program  is not for the state  to pick  and choose  enemies  and start  non-existing conflicts. That is definitely not how Pakistan intends to use its resources and deviate from the real agenda which is to protect the state of Pakistan. The only condition under which Pakistan would use its nuclear weapons against any state would be if they choose to attack the territory of Pakistan in a nuclear or non-nuclear manner. The state has been absolutely clear about this from the very beginning of its  nuclear era.

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