The significance of the China-Pakistan Economic Corridor (CPEC) project, has been visualized in terms of the socio-economic development not only of Pakistan rather for the entire region as well.
Primarily, it is conceived as the developmental project focusing on regional connectivity though the highways, railways, pipelines etc. to sort out the energy deficiency and lack of infrastructure of Pakistan and for China, the materialization of its ambitious project of regional connectivity. The enhancement of trade & commerce, peace & development, human resource development, livelihood opportunities along with the ensuring stability and security of the region, are the main focus of the CPEC. Thus, it has been taken as game and fate changers, which could transform Pakistan into a developed economy. The irony is that CPEC is entrapping Pakistan into financial crisis and making it China’s hip-pocket.
CPEC and Pakistan Economy’s Promising Future?
The political and military leadership of Pakistan are holding views that the CPEC would bring the promising future for its economy. The CPEC is the brainchild of Chinese President Xi Jinping as a part of ambitious project under the umbrella of regional connectivity design -the One Belt, One Road (OBOR). The project has been reciprocated very positively by the Pakistan’s ruling civilian and military leadership in speculation of sea of opportunities in terms of economic, security and political offered by the CPEC.
The project is networks of port, pipelines, highways, railways etc. Eventually, it would be helpful in increasing trade and fulfilling energy demand by connecting the Chinese city of Kashgar to the Indian Ocean through the Pakistani port of Gwadar. Corollary, it is anticipated that the proposed project would give a push to the development of infrastructures and growth of economy with the help of FDI ($46 billion) committed on part of China. Now, the same has reached to the value of $ 62 billion.
The Pakistani politicians particularly from the ruling party including media have been calling the CPEC investments as “game and fate changer” for the region. Moody’s Investors Service has called this project as a “credit positive” for Pakistan. While speaking on the 140th birth anniversary of Quaid-i-Azam Mohammad Ali Jinnah (Peshawar) Pakistani President Mamnoon has projected CPEC as a lifeline for the Pakistan economy. At the same time, he warned the people of Pakistan are to be aware of the internal and external propaganda against the multibillion-dollars project CPEC.
The scholars like Ahmad and Mi (2017) have argued that this project would bring the real economic prosperity for Pakistan. They were also of the conviction that rather it would facilitate in creating a promising future not only for the Pakistan, rather for the entire region as well. In All Parties Meeting (APM) convened (201 May 2015) by the PM had supported the CPEC and the commitment on part of Chinese leadership was taken as a welcome step. The CPEC will improve Pakistan’s current economy as well as the lives of nearly three billion people cutting across the boundaries.
Riaz Ahmad (2018) in his opinion, “CPEC & its Importance”, has dreamt of Pakistani economy that it is likely to emerge as one of the best Asian economies. The World Bank has also predicted that Pakistan’s economic growth will grow at the 5.4% given the increased inflow of foreign investment from the China-Pakistan Economic Corridor.
The project has been envisioned as the corridor of development, peace, and prosperity. The project has a lot of potentials to provide a promising future by boosting trade and investment, three to four-time profit out of investment, the creation of new business and job opportunities and elimination of poverty. It has positive impacts on infrastructure, the energy requirements, workforce development and economic progress.
CPEC: Variegated Dilemma
CPEC has received a mixed response- positive and negative. Politically too, this project has taken as both positive and negative. While addressing (August 4, 2016) the Pakistan Muslim League-Nawaz’s (PML-N) Parliamentary Meeting in Islamabad, PM Sharif called the CPEC a major gift from China. The importance of CPEC for Pakistan could be highlighted by PM Nawaz Sharif’s statement, which believed that the project is going to make Pakistan as, “a regional manufacturing hub and a lucrative market for Foreign Direct Investment (FDI).”
From the negative side, the CPEC has not going well with the Pakistani businessmen. This can be substantiated by an argument of a businessman (head of a large investment company), who is highly critical of the project, “We have to be careful if we don’t want this [CPEC] to turn into a repeat of the East India Company”. The same views have been echoed by Senator Tahir Mashahdi (Chairman of the Senate Standing Committee on Planning and Development) who said, “Another East India Company is in the offing; … but the interests of the state should come first.” One another senator Saeedul Hassan also alleged that, “… will this [project] be a national development or a national calamity? Whatever loans taken from China will have to be paid by the poor people of Pakistan.”
The CPEC has become a bone of contention and controversy among the Federal, Khyber Pakhtunkhwa, and Baluchistan governments. However, these allegations and apprehensions were encountered by the Pakistani Planning Ministry spokesman as baseless and unfair fears.
The major cause of concerns and controversies are due to transparency lack in terms of terms, conditions, and financial details related to CPEC. The State Bank of Pakistan Governor, in an interview with Reuters has said that, “I don’t know out of the $46 billion [in CPEC deals] how much is debt, how much is in equity, and how much is in kind. CPEC needs to be more transparent.” In the backdrop of exponentially increasing Chinese FDI, the IMF Chief Christine Lagarde has also cautioned Pakistan about the potentially unfavorable economic fallout.
Chinese Loan: Pakistan-A Hip Pocket
About $50 billion has been committed on part of China to complete the CPEC project by 2030. About $35 bn for energy projects and $15 bn for mass transit schemes, Gwadar development, industrial zones, and infrastructure. Although the energy projects are planned to be competed by 2020 but seems that the same is not going to be competed before 2023 given the bureaucratic hurdles. On the other hand, the infrastructure projects ($10 bn) like highways, roads, airport and port development are anticipated to be concluded by 2025, while the remaining projects ($ 5bn) by 2025-30.
Pakistan debt has been increased many folds and it is anticipated that it would reach to US$ 90 billion in 2019. China has become the largest lender to Pakistan. Out of this debt, about $19 bn including $ 14 bn ( about 1/5 of its total debt) is owed only to China. This inflating amount of debt is seriously abating the Pakistan’s ability to pay the same. Moreover, it is anticipated that the debt would be reaching to the 70 percent of the total size of the GDP during the ongoing fiscal year despite setting the limit of the same at 60 percent of the GDP by the Fiscal Responsibility and Debt Limitation Act, (FRDLA) 2005.
It becomes important to know the health of the Pakistan economy. Some of the commentaries have argued that the health of Pakistan economy has remained comparatively in a better position under the military rule rather than under the civilian political setup. Can the Pakistan watchers may anticipate the health of economy likely to become bad to worse under the stewardship of PM Imran Khan? Generally, it is presumed that the public debt may be the result of the bad governance and there is probability of so in Pakistan given the formation of coalition government as experienced in a number of countries. The external debt had already reached to 70% of the total GDP.
The new government under the stewardship of Imran is going to inherit faltering economy, huge trade deficit, massive foreign debit, currency crisis, low forex, plunging stock market and the balance of payment. Pakistan has also been plagued by the widespread corruption, lack of law enforcement and lack of education, health, water, electricity facilities etc. Fissiparous tendencies have become one of the major security challenges.
The health of the economy is at the lowest ebb. The growth rate has been remain averaged at 4.91 percent between 1952 to 2016. It was reached at the highest and lowest rate (10.22 and 1.80 percent), in 1954 and 1952 respectively. It is facing a high rate of fiscal and current-account deficits, inflation, and poor performance of macroeconomic indicators. The external debt along with liabilities has reached the highest rate of the GDP. Shahid K. K. (2018, July 15) has argued long with other major economies, Pakistan has also been suffering from the same, which is currently standing at 70.7 %.
Chief Executive Officer (Zubair Ghulam Hussain) of the Insight Securities Pvt. (Karachi) has remarked over the currency volatility, “The nation’s current-account deficit had become sizable and foreign debt repayment obligations were also rising.” Pakistan’s Central Bank has devalued its currency three times since December 2017, particularly in the backdrop of worsening and faltering economy. In the background of failures in terms of foreign, defense and economic policies, Rehman Malik has remarked that the Pakistan economy is on the ventilator. In this context, how Pakistan would be able to pay its loan to China when its economy and forex are not suffice to meet its two months imports?
Options to Bailout From Crisis?
In this scenario, what are the options left for Pakistan and what it should learn from the Sri Lankan experience in respect of the developmental project undertaken by China. Sri Lanka had taken billions of dollars in loans from China for developmental projects (Hambantota-port and airport) without bothering the unpropitious economic fallouts. Ultimately, failing to pay the loan, Sri Lanka had to handover Hambantota and airport to China for 99 years.
Along with the faltering economy, the external dynamics are also not in favor of Pakistan. The relations with the US are at the lowest ebb. The US military and economic assistance to Pakistan have partly been suspended. Moreover, it has been put in the grey list due to money laundering and financing terrorism by the international watchdog FATF. It would likely to create several financial challenges in terms of borrowing loans for Pakistan.
Given the off-keel relations with the US, the IMF option is becoming little unrealizable. In this situation, only China and Saudi Arabia are left viable options to bailout Pakistan from this critical time? In the situation of “Only China Option”, would Pakistan be able to protect per se in turning it into “East India Company” as alleged by some people and politician of the country. There is no hope on part the US and even cautioned the IMF to give loan to Pakistan to pay off the Chinese lenders.
How to come out of this quagmire, is a major challenge for Pakistan?
The new government has to puts its own economic system in order, with sound and pragmatic economic policies. It needs to make its own economy strong by putting pragmatic policies in place along with austerity by following the principle of cutting its sheet according to cloth. More and more loan from China likely to make Pakistan, the former’s hip pocket. When out of CPEC, the promising future was anticipated for Pakistan economy, then why every facet of its economy is moving in opposite direction? The new Pakistani government is needs to take into account all the apprehensions and suggestions given by the country’s intelligentsia, scholars and enlightened citizens.
*Dr. Bawa Singh is teaching at the Centre for South and Central Asian Studies, School of Global Relations, Central University of Punjab, Bathinda, India.
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