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Will CPEC survive the IMF bailout?

Updated July 15, 2019

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There is no official word from China on the apparent slow pace of CPEC projects. — APP/File
There is no official word from China on the apparent slow pace of CPEC projects. — APP/File

The staff report released by the International Monetary Fund (IMF) last week must have provided some measure of comfort to the champions of the China-Pakistan Economic Corridor (CPEC) as well as China that chose Pakistan to be the first key destination for the Belt and Road Initiative (BRI), which aims to sustain its economic triumph and realise future ambitions.

If this is just a coincidence, it is intriguing. After a long lull, there is light blipping again on the CPEC drawing board. Last Friday, a 55-member Chinese delegation of business executives met Prime Minister Imran Khan and reportedly committed to ploughing $5 billion investment over the next five years. “Probably the interaction with the Chinese delegations was already planned, but the fact that it did materialise as soon as details of the IMF deal were made public kindled new hope for the future,” commented a top leader of the government’s economic team.

In its staff report following the approval of a three-year $6bn bailout programme, the IMF mentions the repayment of $14.68bn due for $21.8bn bilateral and commercial loans that Pakistan owes to China. This is almost 24pc of the country’s total $85.8bn external debt and liabilities. The document states that the Chinese commercial debt will be fully retired by the end of the programme in 2022 while the bilateral debt ($15.5bn) will be almost half of what the country owes at this point to $7.9bn.

There is no official word from China on the apparent slow pace of CPEC projects. Its enthusiasm somewhat waned for want of clarity on the post-election economic direction

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 before the start of the current tumultuous phase in May last year.

There is no formal word on the issue from China. The enthusiasm of the dependable friendly nation did somewhat wane for want of clarity on the post-election economic direction. There were concerns about the intent of the new set of rulers on the pledges by the PML-N government regarding CPEC-related projects. The initial statements by members of Prime Minister Khan’s economic dream team where they questioned the sealed deals must have added to the confusion. How far the visit helped to allay China’s reservations is anyone’s guess. But the optics are lacking if China is still as upbeat on the CPEC as before.

China prefers to speak with its silence most of the times. However, people in the know of things in Islamabad said that China did remind the current government, at some point, of the grave consequences of reneging on the earlier signed contractual obligations.

Approaching the relevant Chinese officers supervising the CPEC was a vain exercise as earlier efforts proved useless. It became apparent quickly that China feels neither keen nor obligated to share the details of its multiple deals. It sees no value in entertaining the prying journalists. Sometime back, a senior Chinese diplomat told this writer that whatever they wish to be known is put up on the CPEC website. He said their system does not allow free flow of information. “We need clearance from Beijing before sharing our opinion. It takes time and does not serve the calls of fast-paced media based in democratic traditions.”

The relevant people in the federal government dismissed the perception that the ruling party knocks the wind out of the CPEC sail as being a figment of someone’s imagination. All provinces, except Khyber Pakhtunkhwa, endorsed the counter-narrative — the movement on the CPEC agenda has indeed slowed down under the watch of the current government.

The focal person on the CPEC, Hasan Dawood Butt, sees the project progressing at the expected pace. He termed Pakistan “the buckle of the Chinese belt initiative”. “Prime Minister Khan is as much devoted and committed to the CPEC as anyone else. His successful meetings with the leadership in China hold testimony to his recognition of the project’s value to the country and its people. We are moving ahead in the next phase of economic cooperation that focuses on development of the social sector and economic cooperation,” he said over the phone from Islamabad.

“We host Chinese experts and business delegations every other day. Recently, a delegation of the petroleum sector was in Islamabad to explore the avenues of joint ventures in special industrial zones,” he said. There are nine sites identified across Pakistan for special zones.

Mr Butt attributed the relative lack of visibility of the Chinese in Pakistan to the completion of several early-harvest programmes in the first phase. “We are commencing the second phase of the CPEC where there are no big-ticket infrastructure projects that require Chinese technicians in big numbers. Instead, the focus now is on improving health, education and agriculture. There is discussion over agriculture co-branding etc. Once special zones become operational, perhaps the optics will improve,” he told Dawn.

The sense in the provincial capitals was different. Generally, officers were reluctant to come on record, but said that if the progress on the CPEC is not halted altogether, it is too slow to be seen as moving at all.

“Be it transport or industrial zones, I do not remember when it was last even mentioned in a high-level meeting. I don’t have a shred of doubt in my mind that the lack of interest right now is mutually shared between both partners. It could be the preoccupation of China with sour trade relations with the United States or the obsession of Prime Minister Khan’s team with the demands of the IMF. Whatever it is, it has pushed the CPEC down on the priority list on both sides,” a senior member of the hierarchy in Sindh said.

“At long last, the Punjab government has identified and started the process of acquiring land for the planned industrial zones. If all goes as planned, it will take another two years to fix the infrastructure and arrange for basic utilities before gates are opened to investors,” a senior officer from Punjab told Dawn.

Not everyone agrees. Dr Muhammad Amanullah, a senior officer from Punjab, defended the government. “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 realising the full potential of this opportunity,” he said.

KP Planning and Development Secretary Atif Rehman sounded optimistic. He said the work is in progress on the Rashakai Economic Zone. He was happy with the pace of progress.

According to insiders, not all of the 22 projects in the first phase of the CPEC worth about $29bn 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.

Published in Dawn, The Business and Finance Weekly, July 15th, 2019