In pursuance of the new economic strategic direction, the PTI government hopes to cultivate a more intimate relationship with China focused on equitable trade and active collaboration for expanding the industrial base of Pakistan.
It also expects a greater degree of flexibility from China on the transparency of bilateral deals under the China-Pakistan Economic Corridor (CPEC).
Members of the economic dream team of the government were not sure if they would succeed in winning over the Chinese to agree to grant more time for loan repayments, particularly for commercial loans.
According to our sources, the government is willing to offer an additional markup of one to two per cent in exchange for a three-year rollover. The International Monetary Fund (IMF) has reportedly made a three-year loan package of $6-8 billion conditional on the deferment of Chinese loan repayments.
According to reports, China has thus far injected $19bn for CPEC projects — $13bn for private power projects and $6bn for 22 infrastructure projects. Government loans will be payable after five years, but the repayment for Chinese commercial loans is scheduled for mid-2019-20. Keeping the financial squeeze in sight, Chinese commercial loans were rolled over for one year during the current fiscal year.
Islamabad and Beijing have agreed to ensure electronic data exchange to curb under-invoicing as the bilateral trade statistics do not currently reconcile
A day before travelling to China with Prime Minister Imran Khan to attend the 2nd Belt and Road Forum, Adviser for Commerce, Textile and Investment Abdul Razak Dawood shared his optimistic thoughts on Islamabad-Beijing ties with Dawn over the phone.
“I am excited and going to Beijing with high hopes to get things moving for better outcomes for both the friendly countries. At the start of the next phase of collaboration, in the context of the CPEC, the focus will shift to industrial development and terms of trade that accrue greater benefits to Pakistan,” he asserted.
The adviser was confident that China was comfortable with Pakistan’s compliance with the IMF’s demand for greater transparency in CPEC projects. He dismissed the perception that former finance minister Asad Umar had turned down the IMF’s request to share details of Pakistan’s bilateral agreements, but capitulated to pressure and agreed to chop the defence budget to narrow the fiscal gap.
“I don’t know the details of the IMF meeting. But I don’t think there was any problem on the subject of information sharing. Mr Umar publicly said that we had passed on the information the multilateral lender asked for,” he said.
A source in the Ministry of Finance contested the adviser’s view. He said the issue is still pending as — under the confidentiality clause — details of the country’s bilateral agreements cannot be shared with any multilateral lender.
Mr Dawood declined to comment on the issue of the rollover of Chinese commercial loans. “I am sorry, but I am not aware of developments on this count and not in a position to comment,” he said last Thursday.
He told Dawn that the team accompanying the prime minister this time around is well prepared. “We have done extensive homework and have already agreed on better access to the gigantic Chinese market for a wide range of Pakistani products. The galloping China expects its imports to increase from current $2.1 trillion to $5tr by 2023. With exports to China totalling $1.8 billion, Pakistan’s share is miniscule in the Chinese market. The duty-free access will place Pakistan on a par with the Association of Southeast Asian Nations (Asean),” he told Dawn.
He said the policy paper on Pakistan-China ties has been approved by the cabinet that met earlier in the week. He expected the revised Free Trade Agreement (FTA) would become operational by July. It contains safeguard measures against the import of those products from China that hurt local industry.
He said the two sides have also agreed in principle to the electronic data exchange transfer to curb misdeclaration and under-invoicing. Currently, trade data of the two countries does not reconcile. The volume and valuation of Chinese exports to Pakistan are higher than imports from China reported in Pakistan.
Most FTAs that Pakistan signed over the past 20 years are perceived as flawed because they opened up Pakistan’s market without the country getting reciprocal access to partner nations. Business forums say the agreements hurt the local industry, partially blaming them for the erosion of whatever little industrial base the country had.
To move away from a trade-based consumption-oriented economy, the private sector and its think tanks such as the Pakistan Business Council have long been demanding that trade deals should be revised to allow sufficient space for the local industry to stabilise and expand.
Published in Dawn, The Business and Finance Weekly, April 29th, 2019