In July, Pakistan went to International Monetary Fund (IMF) for a bailout package. There is a general perception that the momentum of CPEC projects are slowing down due to the concerns over the size of Pakistan’s debt and struggling economy. China’s ability to pull 800 million people out of poverty in four decades through economic reforms has presented a compelling model for Pakistan to follow. However, given a tough series of IMF-induced measures for stabilization, economic growth in Pakistan seems to have slowed down even more.
Keeping in view the fact that Pakistan is the first key destination for the China’s Belt and Road Initiative (BRI), the International Monetary Fund (IMF) is providing some measure of comfort to China-Pakistan Economic Corridor (CPEC). It targets to sustain the economic triumph and realize future ambitions.
There is a silver lining in the cloud. Couple of months back, a 55-member Chinese delegation of business executives met the Prime Minister and committed to invest $5 billion over the next five years. And that’s seems to be a co-incidence that this has the same timings of as details of the IMF deal were made public. In its staff report following the approval of a three-year $6 billion bailout program, the IMF mentions the repayment of $14.68 billion due for $21.8 billion bilateral and commercial loans that Pakistan owes to China. This is almost 24 percent of the country’s total $85.8 billion external debt and liabilities. The document states that the Chinese commercial debt will be fully retired by the end of the program in 2022, while the bilateral debt ($15.5 billion) will be almost half of what the country owes at this point to $7.9 billion.
Normally the Chinese government don’t share the details of its multiple deals. The Pakistani counter parts are of the view that the Prime Minister Khan is as much devoted and committed to the CPEC as anyone else. His multiple meetings with the leadership in China were successful and witnessed to the recognition of the project’s value to Pakistan. Now Pakistan is moving ahead in the next phase of economic cooperation that focuses on development of the social sector are exploring petroleum, identifying special industrial zones. So far nine such sites has been identified across the country. Furthermore, there are discussions over agriculture co-branding also. Whatever be the situation, it has pushed the CPEC down on the priority list on both sides.
Provincial governments are identifying and started the process of acquiring land for the planned industrial zones. In the second phase under the new government, the focus of the CPEC has moved towards industrial development, agriculture and socio-economic development. The perception of a slowdown, therefore, is wrong as currently provincial governments are working towards identifying and proposing projects for special economic zones. The exercise needs research and spadework with eyes on realizing the full potential of this opportunity.
According to reports not all of the 22 projects in the first phase of the CPEC worth about $29 billion have been completed yet. Some eight projects in the power sector that are completed are said to be in financial troubles for the non-payment of dues.
Sometime back, the United States explicitly expressed its dismay over the possibility that Pakistan could use the Fund’s money to pay back Chinese loans. The US stance exasperated the anxieties surrounding the multibillion-dollar China’s investment plan. The CPEC did stimulate growth and motivated economic drivers by removing infrastructure bottlenecks.
Keeping in view the crippling economic conditions, Pakistan is compelled to tread slowly and carefully in the emerging geo-economics and politics of the region. Although financial help and support from China, Saudi Arabia and UAE have contributed to partially resolving the country’s balance of payments crisis, yet an IMF bailout seems inevitable.
The previous government used the investment under the China-Pakistan Economic Corridor (CPEC) not only to overcome the energy crisis and infrastructure-building but also to counter pressure from the US. The present government has apparently completely revised Pakistan’s Middle East policy. There is an impression in national and international policy circles that, in the process of economic recovery, Pakistan has lost its geopolitical equilibrium as well.
In the process of rationalization of CPEC projects, Pakistan has put many projects on hold, thus discouraging private Chinese companies and individuals from investing in the special economic zones (SEZs).
China has supported Pakistan’s idea of rationalizing CPEC projects for two major reasons. First, the aggravating economic situation in Pakistan has made China concerned about the repayment of the loans it has provided for CPEC projects. Second, China wanted to give time to Pakistan’s new government to overcome its economic challenges, for which it also provided a couple of bailout packages. The government also tried very hard to diversify its options for the foreign investment, and succeeded to a certain extent — but with a heavy price.
Pakistan is fast losing balance in its relationship with Iran and Saudi Arabia. The $10 billion Saudi plan for a refinery and petrochemicals complex in Gwadar has not only come as cause for caution for Iran, but also China. The latter has concerns that it may lead to Saudi-Iranian proxy warfare in the coastal region, at the bottleneck of CPEC. Though the refinery would be set up about 100 kilometres away from the Pakistan-Iran border, it will continue to perturb China.
An IMF bailout package could be one but, at the same time, the US is not willing to reduce pressure on Pakistan on multiple strategic fronts. It is not the economy alone there are many other factors too.
Looking ahead, Pakistan needs to develop a geo-economics framework of engagement with its neighbors and allies. This country can make sure that Saudi investment is coming with no geostrategic strings attached, and that it would be for economic purposes only. To balance the Iran-Afghanistan-India bond of Chabahar port, China and Pakistan can work towards connecting Chabahar and Gwadar ports. China and Iran have both hinted at the ports’ connectivity through joint initiatives. Chinese academics consider a trade relationship with Iran via Gwadar as one of the major outcomes of CPEC. Pakistan also needs to speed up transnational energy projects with Afghanistan, apart from taking initiatives to boost bilateral trade.
Though CPEC has not fulfilled the expectations of the common man, yet speedy development on the SEZs can address their many grievances. New Chinese investors are desperately looking for investment avenues across the world, mainly in Asia.
Pakistan has to set out priorities of a traditional zero-sum game to ensure that its relationship with one nation do not come at the cost of its relationship with another. This country does not have a multiplicity of options to attract foreign investment, and those that are available need to be fully harnessed.