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Balochistan is Pakistan’s most neglected region and its elected representatives are not taken on board while executing Chinese projects.

CPEC cannot transform Pakistan’s growth path

Pakistan must embark on other economic reforms such as increasing tax revenues, measures to attract FDI, more investments in education, health, science and technology to increase local productivity, introducing cashless digital economy and setting up strong regulatory mechanisms. 

When the China-Pakistan Economic Corridor (CPEC) was announced in 2015, former Pakistan Prime Minister Nawaz Sharif called it a game changer for the country and the South Asian region. Four years later, that excitement over the project has considerably abated as Pakistan is beset with mounting debt, stagnant domestic revenues and increasing pressures on its balance of payments. Unless Pakistan takes measures to establish a peace economy, attract foreign direct investment, and expand its regional connectivity, the hopes of CPEC transforming the country’s economy will remain a pipe dream. 

The CPEC was envisaged as a 15-year-plan (2015-30), comprising infrastructure and power generation projects, and industrial cooperation activities promoted via special economic zones (SEZs). Till 2018, about $18 billion have been spent on 22 projects, of which 10 have been completed. Of the 10 completed projects, there are seven power generation projects and three road construction projects. 

The completed power projects have added about 4,000 MW but it is of no use since Pakistan’s transmission and distribution capacity is short by 3,000MW due to wornout transmission lines, grid stations and transformers. The cost of power generated from the Chinese projects will also be high due to the high rate of return on the Chinese loans, transmission and distribution losses, thefts and the cost of security provided to the Chinese personnel working in these projects. 

The Gwadar Port, another CPEC milestone project, was inaugurated in November 2016 but has not earned much revenue due to constraints: competition from other ports in the region and lack of a hinterland industrial ecosystem. According to the agreement, 91% revenues generated from it are expected to go to China for the next 40 years. 

Several oil analysts have expressed doubts if the 7,000-km pipeline for transporting crude oil and gas from the Gwadar Port to Tianjin, an industrial city in northeast China, makes economic sense as transportation via this route will be $10 per barrel more costlier than ocean freight; the pipeline will pass through the restive Baluch areas and challenging geographic terrain, and oil and gas will have to be lifted from sea level at Gwadar up to 15,400 ft at the Khunjerab Pass. The high cost of construction and maintenance will lower the attractiveness of this route and reduce revenue earnings, diminishing Pakistan’s ability to repay Chinese loans. Read more

The success of other infrastructure projects such as construction of highways, railway line up gradation, metro lines, and LNG pipelines will depend on the increase in number of users, both domestic and foreign, particularly in the neighbouring countries. Given that three of Pakistan’s immediate neighbours — Afghanistan, India and Iran —- hold her responsible for encouraging terrorist activities in their countries, the scope for increasing trade and investment cooperation with these countries will be limited. 

Pakistan’s macro economic situation has deteriorated considerably. According to the International Monetary Fund, Pakistan’s GDP growth declined from 5.8% in 2017-18 to 3.4% in 2018-19, and is expected to decline further (2.7%) in 2019-20. The total debt-to-GDP ratio is expected to climb from 77% (2018-19) to 85.6% (2023-24); the fiscal deficit will increase to 7.2% in 2018-19 and 8.7% in 2019-20 (World Bank). 

The CPEC projects will bring slow and long-term gains to Pakistan but they will not be a panacea for ending its economic problems. Pakistan must embark on other economic reforms, such as increasing tax revenues, measures to attract FDI, more investments in education, health, science and technology to increase local productivity, introducing cashless digital economy and setting up strong regulatory mechanisms. 

But for these measures to succeed, Pakistan will have to stop using terror groups for promoting its foreign policy objectives and build a peace economy with strong regional and global connectivity and long-term stability. No foreign investor (barring China, which has political motives) will invest in a country that is known as the epicentre of terrorism. If Pakistan does not do so, the gains from CPEC will, at best, be modest.

Yogesh Gupta is a former Ambassador

Source: Hindustan Times

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