A tricky balancing act

Published January 17, 2022

THOUGH cognizant of Chinese sensitivities on confidentiality of bilateral agreements, the government moved to comply with the International Monetary Fund’s (IMF) demands of making public all contingent liabilities to have the $6 billion bailout programme revived.

It presented in parliament the details of sovereign guarantees, including the risk cover extended by the Government of Pakistan to certain China-Pakistan Economic Corridor (CPEC) power and infrastructure projects.

In the past, China is known to have resented the idea of publicly disclosing details of CPEC agreements. During the PML-N tenure (2013-18), when pressed over disclosing terms and conditions of the power and infrastructure agreements, the leadership had mentioned the presence of the ‘confidentiality clause’ in the relevant agreements.

China has so far kept mum over the recent developments. Special Assistant to the Prime Minister on CPEC Khalid Mansoor confirmed to Dawn that there has absolutely been no reaction over the recent disclosures on sovereign guarantees from the Chinese side. Talking over the phone, he said that such guarantees are not peculiar to CPEC projects. He did not mention what is being covered in the much talked about ‘confidentiality clauses’ in the multiple agreements under the CPEC umbrella.

Public disclosure of contingent liabilities could have hurt CPEC projects, but govt is satisfied with its handling of the matter

To entice the private sector to invest in high-value projects of national interest, governments in Pakistan have often shared the business risk by offering sovereign guarantees, particularly in power and infrastructure sector projects.

A senior member of the current economic team said the possible Chinese discomfort over disclosures was discussed at the highest forums before the government made its move. “Under the government directives, the presentation on contingent liabilities was skilfully formatted to minimise the risk of Chinese displeasure. We presented sector-wise liabilities, avoiding clubbing all CPEC projects together,” someone very senior in the finance division told Dawn over the phone.

The government officials and some relevant PTI leaders reached in Islamabad were confident that China would understand the harsh realities of Pakistan’s economy that forced the country to make these disclosures.

“Prime Minister Khan has already consented to attend the opening ceremony of Winter Olympics in China to send a clear message on Pakistan’s positioning. By turning down the US President Biden’s invite to the virtual Democracy Summit, the country has already sent a strong signal,” an informed official of the ministry of finance told Dawn, adding that the prime minister’s China visit would be announced soon.

Under IMF pressure, the government for the first time publicly shared details of all contingent liabilities early this month during the proceedings of parliament’s standing committee on finance. The disclosure clause was among the preconditions Pakistan has agreed to meet in order to qualify for the $1bn tranche that Finance Minister Shaukat Tarin recently stated to be necessary to establish the country’s creditworthiness and revive the trust of development partners.

To come clean on IMF’s conditions, the government last week rushed through parliament the Finance Supplementary Bill 2021 and the State Bank of Pakistan Amendment Bill 2021. The utilities and interest rates have already been revised upward.

The IMF, it was observed, wanted the public representatives and nation to be informed about the hidden contingent liabilities, which, technically speaking, are legal obligations for governments to make payments only if a particular event occurs and therefore the fiscal cost is invisible until they become due.

The economic team was busy last week with the finalisation of the Supplementary Budget Bill, and, as such, a detailed response to Dawn query on the possible consequences of parliamentary disclosures was difficult. However, Ministry of Finance spokesperson Muzammil Aslam shared a brief response to explain the government’s stance on the issue.

Without mentioning the exact date or the current and the projected volume of the government contingent liabilities he confirmed that the presentation to parliament included all projects covered by sovereign guarantees without any exception. It implied that CPEC projects were also covered.

He said that data of liabilities reported in the media is not sourced from finance division documents. In conversation, he defended sovereign guarantees, which, in his opinion, were better than loans as guarantees are called only in extreme occurrences. As for the confidentiality of agreements, he said that all government transactions have to be booked and all signatories to such deals know that.

For data verification, he advised reaching out to DG Debt Muhammad Umer Zahid. When approached, the DG was on leave and could not take out time to share the volume of sector-wise sovereign guarantees that are projected to touch a whopping Rs3.5 trillion by the end of the current fiscal.

According to the media reports, the government is expected to add another Rs493bn by June 2022 to the already high Rs2.7tr stocks of sovereign guarantees. The government, say the reports, is expected to issue Rs28bn guarantees in favour of the Kharian-Sialkot motorway, Rs20bn for Jamshoro and Lakhra power plants, Rs5bn for Roosevelt Hotel in New York, Rs4bn for National Transmission & Despatch Company, and Rs3bn for Pakistan Steel Mills. Sovereign guarantees worth Rs17bn are expected to be issued in favour of Pakistan International Airlines, Rs50bn for Water & Power Development Authority, Rs40bn for the Kamyab Pakistan programme, and Rs10bn for Kamyab Jawan programme. Rs306bn worth of new guarantees fall under the category of ‘others’ (related to the defence needs). Besides sovereign guarantees, there is another stock of Rs718bn liabilities on account of operations, such as those by the Trading Corporation of Pakistan and the Pakistan Agriculture and Storage Services, and certain tasks of provincial governments being funded by the central bank and the commercial banks.

Published in Dawn, The Business and Finance Weekly, January 17th, 2022

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