Farhat Ali

Overcoming all global or regional obstructions, the China Pakistan Economic Corridor (CPEC) sends a strong message across: the CPEC is on the go!

In an encouraging development on the home front, all provinces have embraced the reality that the CPEC is there to stay. Hence the need for extracting maximum benefits from this historic development project.

One Belt One Road is the signature project of China and the CPEC is the vital part of it which will shape up China’s strategic economic, political and defense interests in one of the most strategic locations.

Pakistan is bracketed with China in these strategic interests. The show has started from Gwadar with the flags of China and Pakistan fluttering side by side in high waters of the Arabian Sea.

The first-ever container vessel—MS TIGER—arrived at Gwadar port under China Pakistan Economic Corridor (CPEC) last week. Pakistan Navy’s PNS Dehshat and Karar escorted MS Tiger to the Gwadar Port.

This new Ship Container Service namely Karachi Gwadar Gulf Express will connect Gwadar Port with the Middle East hub of UAE’s Jebel Ali as well as the neighbouring ports of Abu Dhabi and Sharjah. After embarkation of more container of frozen sea food from Gwadar Port, the ship proceeded to Jebel Ali Port.

An impressive ceremony was held at port on arrival of MS Tiger. The reception ceremony was attended by Commander Coast of Pakistan Navy, Rear Admiral Moazzam IIyas. Pakistan Navy has raised Taskforce 88 to undertake defence of Gwadar Port and its surrounding areas. This Taskforce is providing defence to Gwadar Port from seaward approaches and merchant vessels visiting the Port through deployment of Pakistan Navy’s assets.

While China is on a fast track to maximize the benefits of the CPEC, Pakistan is limping. At Gwadar, China has been awarded by Pakistan a 40 years lease to Build, Own, Operate and Transfer (BOOT) an enclave comprising the port, container terminal and an economic zone, while, the road and infra-structure from Gwadar to China is being jointly developed by Pakistan and China under the surveillance of Pakistan army.

This strategic part of the CPEC, much under the influence of China, is proceeding ahead well and China appears to be determined to maximize benefits out of it.

Pakistan’s role under the CPEC is the development of its energy sector and infrastructure for which a loan of around $ 60 billion has been dedicated through the Eximp Bank of China.

It is the Pakistan part of the CPEC which is struggling and is a victim of poor governance and incompetence. Apart from some power plants and infrastructure projects being positioned on ground, largely in Punjab, there is no other significant development.

Special Economic Zones (SEZs), planned to be set up all over the country to spur economic activities, are struggling to kick-start in the absence of defined incentives and policies, investor facilitation mechanisms and structures, high cost of doing business and other grey areas which need to be seriously addressed in order to woo investors.

SEZs, for Pakistan, are the most important part of the CPEC to create new job opportunities and generate revenues.

Pakistan has economic issues. The International Monetary Fund (IMF) has expressed concern over grave threats to country’s economic outlook. The IMF Executive Board on March 5 concluded the first post-programme monitoring discussions with Pakistan.

“Against the background of rising external and fiscal financing needs and declining reserves, risks to Pakistan’s medium-term capacity to repay the Fund have increased since completion of the Extended Fund Facility (EFF) arrangement in September 2016,” it maintained in the statement. Pakistan’s near-term outlook for economic growth is broadly favorable. Real GDP is expected to grow by 5.6 percent in fiscal year 2017-18, supported by improved power supply, investment related to the China-Pakistan Economic Corridor (CPEC), strong consumption growth, and ongoing recovery in agriculture. Inflation has remained contained, the statement added.

However, continued erosion of macroeconomic resilience could put this outlook at risk. Following significant fiscal slippages last year, the fiscal deficit is expected at 5.5 percent of GDP this year, with risks towards a higher deficit ahead of upcoming general elections. Surging imports have led to a widening current account deficit and a significant decline in international reserves despite higher external financing. The fiscal year 2017-18 current account deficit could reach 4.8 percent of GDP, with gross international reserves further declining in a context of limited exchange rate flexibility.

The IMF has projected that Pakistan’s gross reserves could slip to $12.1 billion. The budget deficit is expected to widen to 5.5 percent of GDP in 2017-18.

The IMF has estimated that Pakistan’s overall debt-to-GDP ratio would remain at 69.7%. According to the statement, directors took note of Pakistan’s favorable growth momentum, but noted with concern the weakening of the macroeconomic situation, including a widening of external and fiscal imbalances, a decline in foreign exchange reserves, and increased risks to Pakistan’s economic and financial outlook and Directors noted external sector pressures are in part linked to the fiscal deterioration during the last fiscal year and an accommodative monetary policy stance, as well as the high imports related to the China Pakistan Economic Corridor projects.

It has now become inevitable that the project loans are converted into revenue for loan payback. This process is extremely inappropriate.

One repeatedly hears from the government functionaries and opinion makers that the CPEC is a game changer for Pakistan. It indeed is, but what are we doing in this regard? If we benchmark the performance of both the countries against the CPEC criteria at a scale of 10, China probably stands at 7, while Pakistan at 2. Pakistan needs to catch up and catch up fast.

(The writer is former President of Overseas Investors Chamber of Commerce and Industry)