Pakistan’s Unlearning Curve

0

By Allabaksh

Pakistan has much to learn from Sri Lanka’s experience with Chinese Yuans. Like Pakistan today under Prime Minister Nawaz Sharif, Mahinda Rajapaksa regime in the island nation depended heavily on the Bamboo capitalist, as it went around spitting at India and distancing itself from the West in pursuit of a jaundiced strategic vision.

Yes, there is one significant difference between Sharif and Rajapaksa. While the former Sri Lankan strongman courted China for developing Hambantota, which is his home town, as a part of his post-war reconstruction campaign, Pakistan has chosen to become a voluntary partner in the CPEC the Chinese have conceived as their new silk route to the Arabian coast.

Yet, a study of Sri Lankan experience is necessary. For a variety of reasons. The home grown economists have begun to doubt whether theChina Pakistan Economic Corridor (CPEC) and its related projects taken up at a cost $54 billion would really benefit Pakistan or push the country into a debt trap.

Politicians of all hues are also joining the brigade of Doubting Thomases wondering aloud whether the CPEC could become another East India Company.

“We are proud of the friendship between Pakistan and China, but the interests of the state should come first,” Senator Tahir Mashhadi, chairman of the Senate Standing Committee on Planning and Development, said almost three months ago in October sounding alarm bells that the CPEC could turn into another East India Company if the country’s interests were not actively protected.The ruling PML-N Senator in the committee shared his concern.

In a development that has no parallel, China is inviting chief ministers of all the Pakistani provinces to a meeting it is hosting in Beijing on various aspects of the CPEC. It is for the second time that the Chinese leadership is directly talking to the chief ministers to make them fall-in line and sink their differences on the route of the CPEC and the projects planned as a part of the corridor. It had earlier flown to Beijing leaders of Sindh and Khyber Pakhtunkhwa (KP) for a pep talk as they have been vociferous in their objections to Prime Minister Sharif’s Punjab province grabbing the lion’s share of CPEC ventures.

Students of history are perturbed at the Chinese ways and see in it parallels to what the British East India company had practiced while increasing its footprint in India two hundred years ago. In modern economics lingo, the Chinese are practicing no more than the creeping acquisition.

Prime Minister’s points-man on foreign affairs, Sartaj Aziz has put an interesting spin early December in what is clearly an effort to deflect attention from the flip-side of Pak-China story. He said loans taken under CPEC projects would be repaid at two per cent interest over 20 to 25 years.

Frankly Aziz, an economist by training and diplomat by temperament, was economical on truth. Or he was about one-quarter right, as Dawn, the sedate Karachi daily likes to describe Aziz-Speak.

More than two-thirds of the $28 billion committed for the ‘early harvest’ CPEC projects is actually on commercial terms. Most of these projects have a debt-to-equity ratio of around 80:20; in in some cases it is 75:25. The return on equity (ROE) is guaranteed at 17pc or more, according to CPEC documents in public domain.

All this would translate into a heavy debt service burden. Since Pakistan’s economy is not in pink of health with falling exports, and low tax base, the country will find it hard to carry the extra debt burden. Neither Prime Minister Sharif nor his finance Minister has bothered to address the question busy as they are trying to sell the CPEC as an attractive transport medium to Iran, Russia and landlocked Central Asian Republics.

Now turn to Sri Lankan experience to let alarm bells to sound incessantly. And to hoist theday and night cautionary signal number five at Gwadar to warn that the port and the ships in harbour are in danger from cyclonic storm with surface winds 62 to 88 km/hour.

China funded Rajapaksa showpieces in Hambantota – the sea port ($ 1.3 bn),  tele-cinema park, cricket stadium, and sports zone are wearing a deserted look while the Mattala Rajapaksa International Airport (also in Hambantota) has become the  world’s emptiest international airport with every international airline worth the name, the Chinese including, shunning it.

Thecoal-fired Norochcholai Power Plant (cost $1.35 bn) also has become a white elephant, and Colombo is forced to transfer ownership to the Chinese in a debt-equity swap.The story of Exim Bank of China financed 150km long SouthernExpresswayis no different. It has increased Sri Lanka’s debt servicing costs.

Sri Lanka’s debt tripled as Rajapaksa had tapped into China’s goodwill for his post-Eelam war reconstruction work. Today, the island nation is spending 95.4 percent of its revenue to repay the debt which stands at a whopping $65 billion.

Pakistan’s is a crisis-prone and fragile financial system, according to Dr Asad Zaman, vice-chancellor of the Pakistan Institute of Development Economics. Prophets of gloom are already predicting that Pakistan’s economy is going to collapse like that of Greece’s in the next 10 years.  As of now Pakistan’s debt at around $73 billion (over a population base of 200 million) is no match to that of Greece which is $367 billion. But a cause for concern is  theexternal debt; it has increased by around $2 to $2.5 billion by end December.

 

Pakistan’s Central Bank is not hiding its concerns either. The data in its November report shows that debt sustainability indicators have significantly worsened in the last three years due to expensive foreign and domestic borrowings at commercial rates.Exports, which used to finance 80% of imports a decade ago now finance less than 50% of imports.Tax revenues are not looking up. According to a Dec 3, 2016 report, the Federal Board of Revenue (FBR) registered a whopping Pakistan rupees 117 billion shortfall. Against the assigned target of Rs1201 billion, the FBR collected Rs1084 billion in the first five months of the current fiscal year.

 

Against such a gloomyeconomic scenario, Gwadar and the CPEC, like Hambantota, are in the middle of nowhere with a huge loan portfolio. Both are packaged to serve undefined strategic, political and economic gains over a time frame which is unclear.

Will Pakistan hurtle towards bankruptcy as it ends up fully, firmly and formally a Chinese vassal?

The jury is out.

LEAVE A REPLY