China Pakistan Economic Corridor (CPEC) was launched in 2015 when 51 agreements and Memoranda of Understanding (MoUs) worth USD 46 billion were signed between China and Pakistan.
This bilateral project, rated as a flagship constituent of China’s Belt and Road Initiative (BRI), started with the goal of modernising Pakistan’s infrastructure, connectivity within Pakistan and with China vide a road network and rail transportation and the energy sector.
Over the years establishment of Special Economic Zones (SEZs) in all parts of the country and cooperation between the two partner countries to develop Pakistan’s industry was added to the CPEC portfolio.
Many, within the corridors of power, had foreseen that CPEC will result in the creation of over 2.3 million jobs between 2015 and 2030, and add 2 to 2.5 percentage points to the country’s annual economic growth. All stake-holders rated CPEC as a “game-changer” for Pakistan in terms of its economic growth, revenue generation enhancement and the country’s sustainable fiscal consolidation and growth.
CPEC promised massive industrialization. It was also considered a prime mover to lift people out of poverty on the lines of China’s anti-poverty model.
However, none of this happened in the last 8 years or since the birth of CPEC. As of today, the youth of the country are bee-lining to move overseas for better opportunities and more people have fallen below the poverty line.
Many of the mega projects, randomly brought on ground, were ill planned, badly executed and irrational as the cost of investment incurred based on commercial lending from China and the potential to thereby generate healthy revenues did not make any economic sense, notably the imported coal and LNG- based power plants for which the government now lacks financing to import fuel.
As of today, according to the IMF data, China holds roughly $30 billion of Pakistan’s $126 billion total external foreign debt. This is thrice its IMF debt ($7.8 billion) and exceeds its borrowings from the World Bank and Asian Development Bank combined. Pakistan, under pressure from the USA and IMF, has urged China to reschedule it but without success.
CPEC’s potential impact on Pakistan is perhaps akin to that of the Marshall Plan undertaken by the US in post-war Europe. However, there is a marked difference between the two plans. Europe and Japan focused on loans to develop their infrastructure and industry.
Their policies were aimed at achieving revenue generation targets, creating new job opportunities. They strove for rapid industrialization which was geared towards helping their economies increase exports to meet the growing global market demand after the war.
Also, the loans from lenders were soft loans on easy repayment terms. Consequently, within a period of 10 years, Germany and Japan emerged among the leading world economies as exporters of technology-driven systems and goods.
None of this happened in Pakistan. The $30 billion loan standing on the books of Pakistan with rising interests could not be turned into revenue in support of the ailing economy of the country and payback to lenders on account of wrong priorities of loan, widespread misgovernance and lack of ownership by successive governments.
There cannot be a more horrid example of bad governance that has resulted in mounting circular debt and bleeding public sector enterprises with successive governments doing nothing meaningful other than sustaining them on expensive loans.
In this regard the lenders like the IMF, World Bank, Asian Development Bank and China Eximp Bank also carry some responsibility.
While the IMF protects its lending by enforcement of fiscal controls for fiscal discipline like advocating increased taxation, raising energy tariffs and petroleum prices to fund full cost and eliminate subsidy, a market-based exchange rate, exports and import surveillance.
The Fund, unfortunately and conveniently, ignores the governance model of the programme country (in the hands of the elites), which is the root cause of seeking one IMF loan after another. The silence of lenders is questionable while the performance of loan users is pathetic.
Bilateral loans should only be made available to the countries that are armed by fiscal and governance strength and seeking loan as a stopgap and not as a perpetual bailout on account of misgovernance and incompetence.
Copyright Business Recorder, 2023