While everybody in the country is making a song about the China Pakistan Economic Corridor (CPEC), Atif Bajwa, CEO of Bank Alfalah, the country’s sixth largest lender, has asked the economic policymakers to be cautious.
In an interview the other day, he said that while Pakistan opens itself to billions of dollars worth of investment projects, it may also be prepared to an influx of cheap goods that may leave millions in the South Asian nation jobless. This influx of cheap goods, against which the country cannot compete, will negatively affect the local industry and there is no policy in place to address this sort of situation. The whole structure of the local economy would change because of CPEC dynamics.
Along the new roads and growing industrial activity, there will be need for services including for hotels, restaurants, logistics and various other service industries to support this effort. SME is one segment that generally is the core of any growing economy. There would also be more government spending in the next two years or so which will put pressure on the interest rates. However, Bajwa, notwithstanding his concerns, believes that there is every reason to be optimistic if Pakistan could protect local industry, with the banking sector focusing on small and medium sized businesses.
Planning Minister Ahsan Iqbal dismissed Bajwa’s doubts saying that “these are unfounded fears. We will build Pakistan’s industrial zone capacity so we can increase our exports.” Atif Bajwa’s opinion may be drowned in the sea of noises hailing the CPEC from the government side, yet he must be appreciated for giving a different view and calling for a cautious approach towards the project. Rising on the wave of Chinese projects in new power plants and roads as part of the CPEC, the present government has targeted a growth rate of 5.7 percent this year, the fastest pace of GDP growth in a decade. However, it has failed to take into account the influx of cheap goods from China and its impact on industry and employment in the country.
Bajwa is also right on the interest rate scenario. Huge spending on infrastructure may create excess demand in the economy, leading to higher inflation and a rise in interest rates. SME sector, whether it got a boost or not, would not be sufficient to make much difference on the overall economy. Of course, the country should have relied more on its own resources and less on huge inflows of external resources to promote self-sufficiency and avoid mortgaging the future of coming generations. No country has ever developed solely on the strength of inflows from external resources.
Another problem with the CPEC is that the government is not prioritising the projects on the basis of strict economic criteria but disbursing the funds and undertaking projects mainly on political considerations. We can clearly see pressures exerted by the provincial governments and the influential legislators on the selection of projects. Such an attitude will not result in optimal allocation of resources and undermine the utility of projects while debt servicing ability of the country could only be maximised if the funds are utilised optimally and on projects with the best cost/benefit ratio.
It must not be forgotten that the country is already a graveyard of a number of half-finished, sub-optimal projects, which makes people wary of foreign funding. Anyhow, Atif Bajwa has raised very pertinent questions about the CPEC and it is the responsibility of the government to ease concerns that are very important for the destiny of the country. Also, it is very crucial to ensure that enough foreign exchange resources are available when the Chinese resources invested in CPEC become due for repayment. This is a moment of both promise and great uncertainty for which the nation should be fully prepared. -Business Recorder