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Pakistan revives Belt-and-Road projects under Chinese pressure

Belt and Road Initiative

Pakistan revives Belt-and-Road projects under Chinese pressure

Islamabad calls in senior military official after economic crisis stalled investments

   

December 11, 2019 1:00 am by Stephanie Findlay in New Delhi and Farhan Bokhari in Islamabad

Pakistan has bowed to pressure from China to revive a string of Beijing-backed infrastructure projects that have run aground, appointing a senior Pakistani military official to streamline decision-making over the multi-billion-dollar investments.

The China-Pakistan Economic Corridor is a key part of the Belt and Road Initiative, which Beijing sees as a 21st-century Silk Road to connect Asia, Africa and Europe. But only half of the announced $62bn-worth of projects in Pakistan are under way as Islamabad scales back its financial commitments while it implements a $6bn IMF bailout package.

Beijing is frustrated with the slow pace of the initiative, which is supposed to be a shining example of China’s economically transformative investments, and has put pressure on Islamabad to put the military in charge.

Last month retired lieutenant-general Asim Saleem Bajwa was appointed chairman of a new CPEC authority, reinforcing the military’s grip on the project and insulating it from prime minister Imran Khan’s fractious government.

“The job of the CPEC authority will bring focus to this vast project,” said a senior government official in Mr Khan’s office. “General Bajwa will also take care of the security aspects.”

But even though the military is assuming greater control, analysts said Pakistan’s economic crisis will continue to constrain work on CPEC.

Islamabad has slashed imports, depreciated the rupee, decreased development spending and raised taxes in an effort to cut its substantial fiscal and current account deficits. Gross domestic product growth has tumbled from 5.8 per cent last year to a forecast 2.4 per cent this year. Exports are flatlining.

Large-scale manufacturing production fell 5.9 per cent year on year in the three months from July to September, with some industries, including cars and pharmaceuticals, suffering double-digit decreases in production.

Pakistan is now worried about falling into a debt trap

Husain Haqqani, Hudson Institute

© Bloomberg


China has long faced criticism that its BRI projects burden fiscally weak countries with unsustainable debt. Islamabad is expected to pay $40bn in debt repayments and dividends to China over the next two decades.

Sakib Sherani, former adviser to the Pakistani finance minister, told the Financial Times that CPEC-related debt was “not unmanageable” but cautioned that Pakistan’s ability to meet its debt obligations hinged on increasing exports.

“There is a disconnect. CPEC-related debt eventually must generate enough exports to be able to deal with the repayments.”

Last month US ambassador Alice Wells warned that “China is going to take a growing toll on the Pakistan economy”. She added: “Even if loan payments are deferred, they’re going to hang over Pakistan’s economic development potential, hamstringing prime minister Khan’s reform agenda.”

Beijing dismissed these fears. “Debt incurred from CPEC stands at $4.9bn, less than one-tenth of Pakistan’s total debt. I’m afraid US is not bad at math, but rather misguided by evil calculations,” a Chinese spokesman said on Twitter. “Whatever the US says or does to sabotage our co-operation, China will work with Pakistan for steady progress in CPEC.”

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Pakistani officials have already said that CPEC would move away from grand infrastructure projects into the copper, gold, oil and gas sectors. It is unclear if a major railway project, the $9bn ML-I scheme which has already been delayed by four years, will go ahead.

“Pakistan is now worried about falling into a debt trap,” said Husain Haqqani, a former Pakistan ambassador to the US and South Asia expert at the Hudson Institute.

For its part, China fears it has heavily invested in the country “with little prospect of return, both strategic and economic”, Mr Haqqani said.

The bigger concern for Beijing is CPEC’s image, some said.

“The big battle at the moment is about CPEC’s reputation, and Beijing cares about salvaging that,” said Andrew Small, author of The China-Pakistan Axis. “They need to show BRI has been a success, that it hasn’t put Pakistan’s economy in trouble and that there isn’t a backlash.”

The project’s performance in Pakistan, a close ally of China, could be a harbinger for BRI success elsewhere.

“If they can’t do it in a context like this, it suggests that there is something flawed in the model,” said Mr Small.

Beijing is already recalibrating, he added. On Mr Khan’s first trip to China after assuming office, he had asked for a bailout.

“China has always wanted to avoid just handing out money,” said Mr Small. “CPEC was supposed to be the antithesis of this.”

https://www.ft.com/content/ab809f2c-1101-11ea-a7e6-62bf4f9e548a?segmentid=acee4131-99c2-09d3-a635-873e61754ec6

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