WEB DESK: The recently uploaded World Bank report titled “South Asia Economic Focus Spring 2016, fading tailwinds” makes a direct reference to the China-Pakistan Economic Corridor (CPEC) and while acknowledging that it could be a game changer maintains that it is “mired in political economy risks” and urges the government ‘to address concerns and build consensus among all stakeholders that the corridor delivers on its potential.’
There is a consensus within the country that the 46 billion dollar injection envisaged in the CPEC in the form of infrastructure development would not only fuel the growth rate as well as employment levels but would also facilitate transport and trade linkages with neighbouring countries thereby setting the stage for higher exports which have disturbingly witnessed a declining trend during the last six months or so.
Other countries, including the United Kingdom have welcomed Chinese investment. During the October 2015 visit of President Xi Jinping to the UK, trade and investment deals of more than 63 billion dollars across creative industries, retail, healthcare, aerospace and technology sectors, including a 33 percent stake in a 52 billion dollar first nuclear power station in Britain, were proudly announced which Prime Minister David Cameron argued would create 3900 new jobs and would usher in a “golden era” between the two countries.
And yet there appears to be mounting concern about the 46 billion dollar CPEC amongst our creditors – multilateral as well as bilateral. This is perhaps best indicated not only by the reference in the World Bank report to the CPEC being ‘mired in political economy risks’ but also in the recently uploaded 10th International Monetary Fund (IMF) review which took the unprecedented step of setting a new structural benchmark (SB) six months before the expiry of the ongoing 6.64 billion dollar Extended Fund Facility – an unusual step as SBs are set at the start of the programme to ensure implementation – that the government draft legislation for a Public Private Partnership (PPP) framework “which will require appropriate fiscal reporting and management of contingent liabilities” and present it in the National Assembly by the end of April.
The legislation, the review adds, should be in line with an ongoing IMF technical assistance whose recommendations have not yet been uploaded on the website because as per the Fund staff in Pakistan, it has not yet been finalised; however, the 10th review report urges the government to “ensure that PPPs are used only when they offer value for money and that they are systematically included in the overall budget process and medium-term planning exercise, with a gatekeeper role for the Ministry of Finance.”
If this SB is taken in conjunction with the fact that the paper work to begin implementation of several CPEC projects is near completion and the Pakistan government intends to extend sovereign guarantees to Chinese private sector companies, reportedly a Chinese stipulated prerequisite for the inflow of the promised 46 billion dollar investment, then the reason for the inclusion of this SB becomes apparent. In this context, it is relevant to note that other countries refrain from extending such guarantees for commercial transactions with private companies as it exposes the domestic economy to a higher level of risk which, in turn, would effectively evaporate external sources of finance for the government – be they in the form of loans or issuance of Eurobonds. No wonder the Ministry of Finance has been designated in the 10th review report as the gatekeeper for the CPEC projects.
The World Bank report additionally also refers to the need to build consensus amongst all stakeholders and while no doubt this may have been a direct reference to the concerns voiced inside the country with respect to the routing of the CPEC with opposition parties clamouring for greater transparency in the projects to ensure that all provinces benefit from the CPEC and not just Punjab yet one would be compelled to maintain that the World Bank was also referring to our external creditors as stakeholders.
There is no doubt that the Sharif administration is relying heavily on the CPEC to meet its 2013 election promises, including resolving the energy crisis through enhanced generation, and higher growth and employment levels – first during the implementation of the CPEC projects and later through enhanced regional trade. And further the corridor is clearly the means through which the PML-N stalwarts have consistently argued that the party would clinch the 2018 elections as well.
There is no doubt that in recent days the PML-N’s re-election bid in 2018 has been severely compromised subsequent to the revelations of the offshore accounts held by the Prime Minister’s three children. His defenders are so far focused on maintaining that the money in these accounts are the fruits of adroit investment decisions by his three children (with 100 percent equity procured from friends and banks) rather than sourced to corruption in Pakistan.
However, few expect the Prime Minister to resign and announce his replacement while keeping a tight control on all decision-making or indeed to announce snap elections but whatever he decides in days and months to come, the fact remains that China is unlikely to back down with or without a Muslim League government until and unless the powers that be do not meet Chinese stipulations. The best way forward would be to debate the matter in the assembly and get a consensus on the issue to ensure that all are on the same page insofar as this game changer is concerned.
Source: Business Recorder