Notwithstanding the fact that the BRI initiative of the Chinese government including its pivotal component CPEC have been acknowledged as unprecedented mega-economic undertaking at the global level, the USA and India are persistently trying to create misgivings and apprehensions about them, more so about CPEC. Supported by the western media the focus has been on equating CPEC with Chinese investments in Sri Lanka and Sudan which they contend had landed them into a debt-trap instead of changing their economic profiles.
The US government and lobbies sympathetic to her seem to have ratcheted up their propaganda in the backdrop of economic melt-down in Pakistan alleging that it was a consequence of the Chinese loans given for the CPEC project. The US Secretary of state Mike Pompeo had warned in July that any potential IMF bailout should not provide funds to pay off Chinese loans adding “Make no mistake. We will be watching what the IMF does” Now that Pakistan has formally made a request to IMF for another loan programme, the State Department spokesperson Heather Neuert speaking to media on Friday 12 October said that US had reminded Pakistan once again that its request to the IMF for financial assistance would be evaluated and examined closely as its current economic situation was due to Chinese loans.
As is evident the US is vigorously trying to rub in the notion of Chinese loans being responsible for Pakistan’s current economic woes and also using it as a pressure tactic against Pakistan. Regrettably some elements within Pakistan have also been toeing this line and creating misgivings and apprehensions about viability of CPEC and its projected benefits.
The reality is that the picture being portrayed by US, the Indian lobby and some elements within the country is divorced from realities. The first thing is that CPEC cannot be compared with Chinese investments in Sri Lanka and Sudan as their circumstances and political environment were quite different from Pakistan. The viability and productive potential of CPEC is assured by geographical proximity between the two countries, time-tested multifaceted relations between the two people which have almost attained the status of infallibility and above all the economic rationale behind this mega-economic venture. Both the countries are unanimous in their view that the loans advanced by China for projects under CPEC were sustainable and had no relevance to the present situation in Pakistan.
Pakistan’s finance minister Asad Umar is on record to have stated that the present financial crisis was a sequel to the formidable current account deficit which hovers around $ 13 billion and is unsustainable requiring immediate bailout. The accumulation of current account deficit is a result of the policy of the previous government to keep the value of rupee static in spite of the fact that it was adversely affecting our exports by diminishing their competitiveness. The central bank perforce had to subsidize imports which resulted in depletion of foreign exchange reserves. The IMF has also pointed out that Pakistani rupee was overvalued and demanded 23% devaluation. This confirms the fact that more of the blame for current account deficit rested with the PML (N) government which instead of tailoring its policies according to the prevailing economic realities bothered more about the political aspect of the issue unmindful of the future consequences. This policy resulted in high current account deficits in the last two years and a depletion of foreign reserves.
The Chinese foreign minister Wang Yi during his recent visit to Pakistan addressed propaganda about CPEC and Chinese loans in these words “The CPEC has not inflicted a debt burden on Pakistan; rather, when these projects get completed and enter into operation, they will unleash huge economic benefits…and these will create considerable returns to the Pakistani economy. Pakistan’s 47 per cent debt level has been incurred due to previous loans from the International Monetary Fund (IMF) and the Asian Development Bank (ADB). CPEC is not only helping to create around 70,000 jobs it is also promoting Pakistan’s overall national growth” It is hard to contest what the Chinese foreign minister said about the impact of CPEC on Pakistan’s economy. The economists believe that the completion of projects under CPEC would lead to 2-3% jump in the GDP growth of Pakistan.
Those who propagate about the burden of Chinese loans deliberately overlook the fact that the bigger chunk of the $ 46 billion CPEC portfolio amounting to $ 34 billion pertains to direct investment in the power projects which the Chinese government has provided as loans to the Chinese companies implementing those projects and not the government of Pakistan. The government of Pakistan has only given sovereign guarantees for annual profits on those projects.
The loans given to the government of Pakistan for other development projects are at the lowest rates as compared to the other international lending agencies. According to official source the rate of interest on those loans is 1.6%. The foregoing factors adequately falsify the propaganda against CPEC, impact of the Chinese loans and the reasons behind the current financial crisis of Pakistan.
The IMF delegation is likely to visit Pakistan in the near future to start negotiations for a possible new loan programme. What will be the final outcome of these discussions is regards to the size of the bailout package remains to be seen. Director General of IMF Christine Lagarde in a statement regarding Pakistani request said that IMF would need to know the extent and composition of the country’s debt including sovereign debt and state owned enterprises debt so that the Fund could actually appreciate and determine the debt sustainability of the country if and when it considered a programme.
Meanwhile it is encouraging to note that China and Pakistan have reaffirmed their commitment to ensure implementation of CPEC projects and a possible expansion of the venture entailing focus on social sectors as per the desire of the PTI government. Spokesman of the Chinese ministry of foreign affairs told a regular news briefing in Beijing on 15th October that China was willing to continue to work with Pakistan to push the corridor construction into a state of enrichment and expansion and to enhance its independent development capability.
The minister for International Development of the Communist party of China Song Tao who visited Pakistan early this week also assured Pakistan of China’s wholehearted support and cooperation for successful implementation of the agenda of PTI government to fight corruption, alleviation of poverty and development of agriculture; the area Prime Minister Imran Khan is most interested in. He will embark on a three-day visit to China on 3rd November to give a new dimension to the cooperation between the two countries.