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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

Possible scenarios in Afghanistan after US withdrawal

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After two decades of U.S. warfare in Afghanistan, President Joe Biden has announced the date for the withdrawal of U.S. troops and ends the longest war. According to him, the United States wills withdrawal its entire military forces from Afghanistan military bases by 9/11/2021. Many Afghanistan politicians do not believe that the U.S. withdraws all of its troops because the central government of Afghanistan does not have adequate preparation after the U.S. withdrawal situation.  However, in this article, I will explore the thinkable scenarios in Afghanistan after the U.S. troop’s withdrawal?  In this study, I will focus on some possible situations in Afghanistan.

 First, achieving peace and construction of Afghanistan National Unity Government (ANUG) is the first possible option post-exit of U.S., Now that foreigners have announced they have left the country, there is no reason for conflict. Such a situation will achieve long peace and stability in Afghanistan and the region; this option needs a comprehensive peace, including internal and external players involved in the coming peace process. I look forward to how the Afghan government maintains the balance of power between the Taliban and other political parties; this is very crucial because the imbalance drawback to the collapse of government and Afghanistan will plunge into civil war as we experienced during the Najibullah government as well. In the external arena, the most affirmative scenario is the situation for the regional country will not be worse. The U.S. will continue its support to the Kabul government in the post-exit era. The external stakeholders, particularly China and Russia, are interested in stability and durable peace in Afghanistan through cooperation with the other regional states (Pakistan, India, Iran, and Turkey). The resolution of the Afghanistan issue will guarantee the security of South and Central Asia its vital for China and Russia because of the core threats to China and Russia from Afghanistan terrorist groups activities, its danger for the U.S. as well. 

Another significant reason is that Afghanistan is the gateway to the Central Asian States with potentially untapped energy resources. The regional Actors want direct access through Afghanistan to these natural resources to meet their dire energy demands. Because of American military presence in the region, the regional countries, particularly Iran, Pakistan, China, and Russia, felt threatened. They began to oppose and protect their interests connected with Afghanistan’s peace and security. The notion is that, in the prolonged presence of the United States, these states that have economic and security interests in Afghanistan would be in danger. China and Afghanistan have several ongoing projects underway, and different transnational actors have sabotaged these projects on several occasions. Likewise, Pakistan has a direct border link with Afghanistan, has several stakes in Afghanistan, and needs access to Central Asia. Pakistan also has concerns about the presence of America. It has also made strong connections with China so that mutual interests could be met by joining hands together.

Similarly, Iran and Russia being strategic partnerships have profound political and economic interests in Afghanistan and arch-rivals of the United States. Both countries have to oppose the actions of the United States and a potential threat for both country’s interests in the Afghan mainland and Central Asia. It means the diverging interests in Afghanistan of regional and American interests, politico-military outcomes would in the long term seem not conducive for lasting peace in Afghanistan unless these could have a political consensus on the said diverging interests vis-à-vis Afghanistan internal reconciliation. If all stakeholders involving in the Istanbul negotiation, they could form an ANUG that all have so far required. Agree, this will be the best option to end the war, and such a government will be bringing peace and stability in Afghanistan and the region.

Second, maintain the status quo: U.S. President announced the date of the withdrawal of troops from Afghanistan, reminding that the United States continued its assistance, exceptionally provide large military and financial aid to Afghanistan. It is unclear whether such a promise will be fulfilled; if the U.S. keeps its support, particularly military and financial assistance to Kabul, the Afghan security forces have enough power to maintain the status quo after the U.S. exit. In this case, if the peace talks in the Istanbul conference fail, the Kabul government will survive. The Afghanistan national army will able to fight against the Taliban and other terrorist groups. Let us remember that Dr. Najib’s government was still strong in terms of power, defense. Still, the main reason was led to his government downfall are the imbalance between internal control and ethnic divisions. Regarding imbalance, we can see the role of General Dostum. In the beginning, he was a core ally with Najib when he turned to the North alliance because he did not see himself in the power position. The ongoing situations in Afghanistan are similar; the statement should focus on the role of warlords and political parties to maintain the inter balance this significant for the central government to survive. On the other hands, the economic and military support for the Afghanistan government crucial because without external support Afghanistan government cannot survive; if the necessary financial resources for security are not available from external donors at the same times in the government of the internal situation have many challenges such as insurgency, terrorist, ethnicity, corruption, and warlords. The current conditions Afghanistan faces the external and internal threat; the Afghanistan government need to deal with it. In this situation how the Ghani will deal with post-U.S. withdrawal, he has two choices two survive the first; he imbalance with China and Russia because china can help Afghanistan financially and play a significant role to force Pakistan and Taliban as well, this choice very dangerous if he fails cannot survive if he succeeds he will be overcome both threats. The second is to keep its alliance with the U.S. this situation will maintain the status quo but not bring durable peace and stability in Afghanistan.           

Third, the collapse of government and going to civil war:  after two decades of war, the U.S. shortcut way to bring peace in Afghanistan. Washington tries to face save from withdrawal of Afghanistan. The U.S., represent Khalilzad, has provided a draft Afghanistan Peace Agreement to the Kabul government and Taliban. The core idea is to replace the elected Afghan government with a transnational one that may occur, including Taliban and negotiation between the parties for a future permanent system. At the same time, president Ghani receives a letter from U.S. Secretary of state Blinken saying it was “urgent” to “accelerate peace talks” and move “quickly toward a settlement.” The letter also has asked Turkey to host a high-level meeting between the Afghan sides “in the coming weeks to finalize a peace agreement.” Suppose the government is to think of independent defense. The Istanbul conference is a good opportunity for the Taliban and Kabul governments to achieve peace; otherwise, the situation will be worse. The current situations are an important opportunity for all different parties, ideologies, groups, and ethnic groups have come together. The unification and arrangement of these products is a complex and arduous task and requires compassion and sacrifice. On the other hand, if the Kabul government delays the negation to remain in power and the Taliban also holds up to returning to power by force, this condition will disintegrate because the ethnic, linguistic, religious, and other divisions turn into armed conflict. In the worst-case scenario, then the 1990s, conflict and war and killing will be restarted, and Afghanistan situations will be worse than Iraq and Syria. In conclusion, this paper argues the future situations of Afghanistan after the U.S. force withdrawal from Afghanistan. During the history of Afghanistan’s statement constantly losing in the diplomatic arena in this crucial moment, how the Ghani governments deal with internal and external issues? All Afghanistan people wish the politicians can play a good role and end the forty-year war and move towards prosperity and stability. If the intra-afghan dialog fails, keep the status quo is also good, at least worse government better than no government, for the benefit of the people and the inhabitants of the big cities, as far as it is acceptable. It is like being delivered in an explosion and suicide attack in these twenty years, and so on. But if we go to the civil war and ethnic conflict and alley to alley, people will forget the previous civil war. I hope that will not happen. People are starving for peace and stability. It would be suitable for political leaders to abandon their interests, focus on the national interest, and move toward a peaceful and prosperous Afghanistan.

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Afghanistan: the US and NATO withdrawal and future prospects

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On April 14, the United States of America announced that it would withdraw all its troops stationed in Afghanistan from May 1 to September 11, 2021. On the same day, NATO also said it would coordinate with the White House military to initiate the withdrawal.

The year 2021 marks the 20th anniversary of the outbreak of war in Afghanistan, a conflict that has actually been going on since the Soviet invasion of that unfortunate country on December 24, 1979.

What are the plans of NATO and the United States? How will the situation in Afghanistan change in the future?

Regarding the US announcement of the deadline for troop withdrawal, Afghan President Ashraf Ghani has said that the Afghan government respects the US government’s decision to withdraw its troops by the agreed date.

According to the Associated Press, there were 2,500 US troops in Afghanistan before May 1, far below the peak of over 110,000 in 2011.

According to the websites of the Financial Times and theDeutsche Welle, some ten thousand soldiers from the 36 NATO Member States and other US allies are currently stationed in Afghanistan, including as many as 895 Italian soldiers, as well as 1,300 Germans, 750 Brits, 619 Romanians, 600 Turks, etc.

President Trump’s previous Administration signed a peace agreement with the Taliban in Afghanistan in February 2020, setting May 1, 2021 as the deadline for NATO to begin withdrawing from that country. The Washington Post reported that after the current US government issued the withdrawal statement, the Taliban immediately said that if the United States violated the peace agreement and did not withdraw its troops in Afghanistan, the situation would get worse and one of the parties to the agreement would take responsibility for it.

This year is the twentieth since the United States started the war in Afghanistan after the terrorist attacks of September 11, 2001. The war in Afghanistan is the United States’ longest overseas war, and has killed over 2,300 US soldiers and wounded some 20,000 people, at a cost of over 1 trillion US dollars.

Although the United States and its allies attacked the Taliban and al-Qaeda, the situation in Afghanistan has been turbulent for a long time, with over a hundred thousand Afghan civilian casualties in the fighting.

According to The New York Times, both Parties’ members of the US Congress have differing views on the consequences of withdrawal. According to the newspaper, Republicans and some Democrats believe that the troop withdrawal will encourage the Taliban insurgency, while others believe it is necessary to put an end to this indefinite war.

But what considerations can be made for the US and NATO withdrawal from Afghanistan?

It is well known that the purpose of the United States in taking the war to Afghanistan was a very heavy measure of retaliation against al-Qaeda, which had organised the terrorist attacks of September 11, and against the Taliban regime that protected the top leaders of that terrorist organisation. Although al-Qaeda has not been destroyed, it is unlikely to create similar problems. The United States has achieved its strategic goals and is no longer involved in East Asia’s tactics and strategy.

The interests of NATO (considering its individual Member States) in Afghanistan are fewer than those of the United States. As a military alliance with the United States, the achievement of US strategic goals means that NATO’s equal strategic goals have also been achieved. Hence, rather than continuing to run the risk of confronting the Taliban and al-Qaeda after US military withdrawals, NATO is more willing to remove the “political burden” as soon as possible.

While announcing the terms of the withdrawal, the White House has stated that the threat of extremist organisations such as Somalia’s al-Shabaab and ISIS is spreading globally and it is therefore meaningless to concentrate forces in Afghanistan, with a steady expansion of its military cycle. At the same time, however, the White House has stated that after withdrawal, diplomatic and counter-terrorism mechanisms will be reorganised in Afghanistan to face security challenges. Hence, from the US perspective, there is currently a greater terrorist threat than al-Qaeda and the Taliban.

The prospectsfor advancing the Indo-Pacific regional strategy to oppose China also means that it would be counterproductive for the United States to remain in Afghanistan any longer. Even after the troop withdrawal, there will be insecurity in Afghanistan. That being the case, however, the United States will still find ways and means to support the Afghan regime and the armed forces of the Kabul government.

The Washington Post has also reported statements by a Pentagon official who has stressed that Afghanistan is a landlocked country: consequently, once US and NATO forces withdraw, one of the biggest challenges will be how to effectively monitor and combat extremist organisations and resist threats to US security: at that distance it will be even more difficult without sea landings.

According to Reuters, the CIA predicts that the possibility of a further US-Afghan peace deal is little and has warned that once the United States and its allies withdraw, it will be difficult to stop the Taliban.

The Afghan government forces currently control Kabul and other large cities, but the Taliban are present in more than half of the country’s territory and rural areas. In the future, the possibility of a Taliban counter-offensive cannot be ruled out.

Great Britain’s The Guardian has commented that the years of war have generally made Afghans feel a strong sense of insecurity and the withdrawal of troops will not bring much comfort to the local population. According to the London-based newspaper, for the United States this is yet another war that cannot be won.

According to experts, there are two extreme possibilities in the future situation in Afghanistan. The excellent situation is the one in which the less extremist wing of the Taliban mediates so that, once the United States withdraws, the Taliban can gradually move from being an extremist organisation to being an internal administrative one and then negotiate with the legitimate government supported by the United Nations: this would mean a long-term peace after forty-two years of war.

Under extremely unfavourable circumstances, instead, the Afghan government forces would overestimate their military strength and intend to continue the war alone against their traditional opponents, at which point peace negotiations between the two sides would break down.

This would mean falling again into a prolonged civil war and into eternal war.

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Bhashan Char Relocation: Bangladesh’s Effort Appreciated by UN

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Bhashan Char. Image source: dhakatribune.com

Bhashan Char, situated in the district of Noakhali, is one of the 75 islands of Bangladesh. To ease the pressure on the digested camps in Cox’s Bazar and to maintain law and order, Bangladesh has relocated about 18,500 Rohingya refugees from the overcrowded camps to the island since December last year. The Rohingya relocation plan to Bhashan Char aligns with the Bangladesh government’s all-encompassing efforts towards repatriation. The initial plan was to relocate 100,000 of the more than a million refugees from the clogged camps to the island. From the onset of the relocation process, the UN and some other human rights organizations criticized the decision pointing to remoteness and sustainability. UNHCR showed their concern over the island’s susceptibility to seasonal storm and flood. They proposed for a “technical assessment” of the Bhashan Char facilities.

An 18-member UN delegation visited Bhashan Char Island on March 17 this year to have a first-hand assessment of the housing facility for the Rohingya forcibly displaced Myanmar Nationals (FDMNs). Shortly after the UN’s visit, a team with 10 diplomats including heads of missions of embassies and delegations from Turkey, the EU, US, UK, France, Germany, Japan, Australia, Canada and the Netherlands also went to the island on April 3 to appraise the facilities. All the members of the technical team opined that they are ‘satisfied’ with the facilities in Bhashan Char. The experts of the UN told, they will hand over a 10-page report of their annotations and they have already submitted a two-page abridgment. On April 16, they released the two-page synopsis after a month of the visit.  After the three-day study of Bhashan Char by the UN delegates, they recommended the Bangladesh government to continue the relocation process to the island in a ‘phased manner’. The team twigged three points – education for Rohingya children, increasing heights of the embankments and better communication system. The Foreign Minister of Bangladesh A. K. Abdul Momen concerted to take the necessary measures to create a safe and secure environment for the Rohingya refugees until the repatriation takes place. The relocation is not the solution of the Rohingya crisis rather the over emphasis of the relocation and facilities inside Bangladesh is protracting the crisis and distracting the attention from the broader emphasis on the repatriation to Myanmar.

The UNHCR and other concerned parties should plan for a long run repatriation process. Repatriation is the only durable solution, not the relocation of the Rohingya refugees. For the time being, resettlement under the Asrayan-3 project is an ease for the FDMNs but in the long run the Rohingya crisis is going to turn as a tremendous threat for regional peace and stability. Besides, resentment in the host community in Bangladesh due to the scarce resources may emerge as a critical security and socio-economic concern for Bangladesh.  It is not new that the Rohingyas are repatriated in Myanmar during the Military rule. Around 20,000 Rohingya refugees were repatriated to Myanmar in the 2000s. The focus of the world community should be creating favourable conditions for the Rohingyas to return safely regardless who is in the power seat of Myanmar-civilian or military government. The UN should largely focus on repatriating the Rohingya refugees in a “phased manner”, let alone deciding their concern in the camps and the Bhashan Char. After the praiseworthy relocation plan, they should now concentrate on implementing speedy and durable repatriation. Proactive initiatives are essential from all walks for a safe and dignified return of the FDMNs. To be specific, the relocation is a part of the repatriation, not the solution of the problem. 

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