Skip to main content

China's proving to be an expensive date for Pakistan

By Bloomberg 

The truth is that the cure for Pakistan’s economy is obvious -- just difficult for politicians to implement. Pakistan needs to be integrated with the global economy, not just with China’s extractive state.

By Mihir Sharma

We’re about two months away from elections in Pakistan -- elections that are almost certain to be shrouded in controversy, one way or another. And, worryingly for Pakistan, it appears that the economy is weakening, just in time for the instability that might follow from the country’s turbulent politics.

Under the outgoing government -- led till last April by Nawaz Sharif, three times prime minister -- the economy had appeared to be doing well. In fact, a new energy seemed to have infused Pakistan’s entrepreneurs and investors; in the last fiscal year, the economy grew at 5.8 percent, the fastest rate in 13 years.


That now appears set to change. Economists polled by Bloomberg worry that, in the coming year, growth will slow to 5.2 percent -- a full percentage point below the government’s own optimistic forecast.

China’s Silk Road
The problem is that much growth in the recent past has been unbalanced, depending particularly on investment from China in the China-Pakistan Economic Corridor (CPEC) -- a branch of Chinese President Xi Jinping’s world-spanning Belt and Road Initiative -- and on Pakistani government spending that matches the CPEC’s aims. China’s big bet on Pakistan’s infrastructure has to be paid for somehow, in part through the purchase of Chinese heavy engineering and other inputs.


Those imports have helped swell Pakistan’s current account deficit by 50 percent, to a record high of over $14 billion. Pakistan’s central bank has devalued the currency twice but has felt that it has few options other than running down the country’s foreign-exchange reserves. Over the past fiscal year, a third of the reserves have evaporated.

These are the classic signs of a fragile economy that is failing to tighten its belt where needed. To give the outgoing government some credit, it tried to correct course slightly in its annual budget last month, which cut infrastructure spending by 20 percent.


As the economists polled by Bloomberg point out, however, that’s going to affect growth going forward. Meanwhile, the government’s other expenditures -- on wages, pensions and so on -- went up by 20 percent. There’s an election on, after all. And, of course, the pampered Pakistan military had its budget raised by 20 percent.

Many analysts expect that Pakistan is going to have to turn to the International Monetary Fund in a few months, particularly if its reserves continue to dwindle at this rate. Even the rabidly anti-Western opposition leader, Imran Khan, has reportedly admitted in private that he would approach the IMF for help if he’s elected.

The problem is that Pakistan’s leaders have put all their eggs in one basket. The CPEC may have some advantages for Pakistan’s economy -- for one, it has helped address the country’s chronic power shortage -- but the costs are worrisome. China forces Pakistan to buy Chinese equipment for use in Chinese projects, shredding its reserves; then Beijing extends loans to cover the purchases, which sends Pakistan’s debt soaring.

Pakistan’s external debt is now $91.8 billion -- up 50 percent since Nawaz Sharif was sworn in as prime minister almost five years ago. The public debt-to-GDP ratio is 70 percent, far higher than most of the country’s peers. And about two-thirds of the early loans from China have been extended at a usurious rate of interest – seven percent, according to some experts.

The next government -- even if it’s again led by Sharif’s party -- will have to recognize that Pakistan’s China-first economic model has broken. Frankly, it looks awfully odd for Pakistan to be bankrupted by China and then to approach the West -- in the form of the IMF -- for help. China and Pakistan may be “iron friends,” but this isn’t what friends do to each other.

The truth is that the cure for Pakistan’s economy is obvious -- just difficult for politicians to implement. Pakistan needs to be integrated with the global economy, not just with China’s extractive state.

Only after Pakistan begins to export more to the world will it be able to pay for what investment it needs. Currently, the exports-to-GDP ratio is below 10 percent, far lower than other countries in the region. The Sharif government began structural reform with some enthusiasm, but that effort faded as it ran into heavy weather politically.

The reform program needs to be revived, and forms of funding and building infrastructure must be found that don’t leave Pakistan dependent on expensive Chinese financing. Till that happens, even fast growth won’t be sufficient to paper over the Pakistan economy’s essential fragility


Popular posts from this blog

SSG Commando Muddassir Iqbal of Pakistan Army

“ Commando Muddassir Iqbal was part of the team who conducted Army Public School operation on 16 December 2014. In this video he reveals that he along with other commandos was ordered to kill the innocent children inside school, when asked why should they kill children after killing all the terrorist he was told that it would be a chance to defame Taliban and get nation on the side. He and all other commandos killed children and later Taliban was blamed.
Muddassir Iqbal has deserted the military and now he is  with mujahedeen somewhere in AF PAK border area”
For authenticity of  this tape journalists can easy reach to his home town to interview his family members or   ISPR as he reveals his army service number”
Asalam o Alaikum: My name is Muddassir Iqbal. My father’s name is Naimat Ali. I belong to Sialkot divison (Punjab province), my village is Shamsher Poor and district, tehsil and post office  Narowal. Unfortunately I was working in Pakistan army. I feel embarrassed to tell you …

The Rise of China-Europe Railways

The Rise of China-Europe RailwaysMarch 6, 2018The Dawn of a New Commercial Era?For over two millennia, technology and politics have shaped trade across the Eurasian supercontinent. The compass and domesticated camels helped the “silk routes” emerge between 200 and 400 CE, and peaceful interactions between the Han and Hellenic empires allowed overland trade to flourish. A major shift occurred in the late fifteenth century, when the invention of large ocean-going vessels and new navigation methods made maritime trade more competitive. Mercantilism and competition among Europe’s colonial powers helped pull commerce to the coastlines. Since then, commerce between Asia and Europe has traveled primarily by sea.1Against this historical backdrop, new railway services between China and Europe have emerged rapidly. Just 10 years ago, regular direct freight services from China to Europe did not exist.2 Today, they connect roughly 35 Chinese…

CPEC Jobs in Pakistan, salary details

JOBS...نوکریاں چائنہ کمپنی میںPlease help the deserving persons...Salary:Salary package in China–Pakistan Economic Corridor (CPEC) in these 300,000 jobs shall be on daily wages. The details of the daily wages are as follows;Welder: Rs. 1,700 dailyHeavy Duty Driver: Rs. 1,700 dailyMason: Rs. 1,500 dailyHelper: Rs. 850 dailyElectrician: Rs. 1,700 dailySurveyor: Rs. 2,500 dailySecurity Guard: Rs. 1,600 dailyBulldozer operator: Rs. 2,200 dailyConcrete mixer machine operator: Rs. 2,000 dailyRoller operator: Rs. 2,000 dailySteel fixer: Rs. 2,200 dailyIron Shuttering fixer: Rs. 1,800 dailyAccount clerk: Rs. 2,200 dailyCarpenter: Rs. 1,700 dailyLight duty driver: Rs. 1,700 dailyLabour: Rs. 900 dailyPara Engine mechanic: Rs. 1,700 dailyPipe fitter: Rs. 1,700 dailyStorekeeper: Rs. 1,700 dailyOffice boy: Rs. 1,200 dailyExcavator operator: Rs. 2,200 dailyShovel operator: Rs. 2,200 dailyComputer operator: Rs. 2,200 dailySecurity Supervisor: Rs. 2,200 dailyCook for Chinese food: Rs. 2,000 dailyCook…