Squeezed by debt and the US, Pakistan slows Belt and Road projects
'Even Beijing knows' things are on hold, experts say
W. TARIQ, Contributing writerSEPTEMBER 08, 2019 12:08 JST
Pakistani Prime Minister Imran Khan. left, speaks with Chinese Premier Li Keqiang during a signing ceremony in Beijing, in April. © Reuters
KARACHI -- Facing a prolonged financial crisis, and trying to balance ties between China and the U.S., Pakistan's policymakers are slowing the pace of multibillion dollar projects under China's Belt and Road Initiative.
The China-Pakistan Economic Corridor, or CPEC, launched in 2014, aims to build links between China's Xinjiang Autonomous Region and the port city of Gwadar in southern Pakistan. The total cost of the project is estimated at $60 billion.
According to Hassan Daud Butt, CPEC project director for the Pakistani government, many Phase-1 projects, including improvements to the port of Gwadar, power plants and road construction, are unfinished despite deadlines set for last year by the previous government. Nor has there been progress on Phase-2 projects, which include setting up special economic zones and industrial estates. The initial time table called for the zones to be up and running by 2020.
Butt, in a recent telephone interview with the Nikkei Asian Review, did not comment on the reasons for the delays. But many experts say the government has adopted a go-slow approach to projects.
"There can't be any progress with China. Even Beijing knows that CPEC is on hold at the moment," said Kaiser Bengali, an economist and former policy adviser to the Sindh provincial government. "The U.S. doesn't want China's influence to grow, ... [so] control of our economy is in the hands of the U.S. and its affiliated institutions," such as the International Monetary Fund and the World Bank.
Pakistan has put most of its eggs in the China basket. Chinese investment in the CPEC has led to massive imports of Chinese equipment and materials, swelling Pakistan's current account deficit and external debt. According to an IMF report published in July, Pakistan's total public external liabilities stood at $85.4 billion in March, one-fourth of which was owed to China. The State Bank of Pakistan, using a broader definition, puts the total at $106 billion.
A surge in import and debt financing has left Pakistan's foreign reserves critically low since last year. According to the State Bank of Pakistan, the country borrowed $16 billion from abroad in the 2018-19 fiscal year to avoid running out of foreign currency. Forty-two percent of that, or $6.7 billion, came from China. The government also approached IMF, which in July approved a $6 billion bailout.
The huge debt pile is forcing a slowdown in new projects. One example is the $8.5 billion Mainline-1, a railway modernization project that was part of CPEC Phase-1. According to sources in the Planning Commission of Pakistan, the bureaucracy is reluctant to proceed because of increased scrutiny from the National Accountability Bureau, as well as IMF restrictions on Pakistan taking on more debt.
Ayesha Siddiqa, a political commentator and research associate at London University's School of Oriental and African Studies, sees another factor behind the go-slow policy: Pakistan's military.
"They are getting stories published that criticize CPEC. No newspaper would have dared publishing anything critical of CPEC two years ago," Siddiqa said. The military has long been seen as the government's equal in policymaking. "The green signal [for criticism of CPEC] is because the military wants to push back," she said.
Critical voices are getting louder in many quarters. "It should be noted," a prominent industrialist said, speaking on condition of anonymity, "Pakistan's business community is not fully involved in joint venturing with Chinese investors."
Members of the public are also skeptical. "CPEC is beneficial for Pakistan, since we need investment for economic growth and stability. But in comparison, I think China will benefit much more than Pakistan," said Tashfeen Farooqi, a Karachi homemaker.
Shahbaz Rana, a financial journalist in Islamabad, agrees: "Although Pakistan's energy bottlenecks have been removed [by CPEC power projects], in the long term, China has more benefit as compared to Pakistan," he said.
Violence against Chinese workers in Pakistan, such as a recent attack on a luxury hotel in Gwadar by Baloch insurgents, has also stirred debate over whether the CPEC will succeed.
Meanwhile, U.S. President Donald Trump's determination to withdraw troops from Afghanistan is an opportunity for Pakistan to improve its relationship with Washington, experts say. Because the U.S. is opposed to CPEC, Pakistan appears to have agreed to make certain adjustments to allay its concerns.
"Pakistan is essentially trying to balance its relationship with China and the U.S.," said Kamran Yousaf, a diplomatic affairs correspondent based in Islamabad.