EDITORIAL: The Chinese Ambassador to Pakistan, Jiang Zeidong, recently stated that Prime Minister Shehbaz Sharif’s visit to China would lead to an upgrade of China Pakistan Economic Corridor (CPEC) and “send a strong signal of solidarity and cooperation between the two countries to the international community.”
He added that so far China has directly invested 25.4 billion dollars in Pakistan (inclusive of constructing 510 kilometres of roads, 8000MW of electricity generation and 886 kilometres of transmission network), and created 236,000 jobs.
” While these are noteworthy engagements reflective of the long-term “ironclad friendship” between the two countries, yet Pakistani administrations’ persistent neglect and failure, barring none, to undertake politically challenging reforms, particularly in the power and tax sectors coupled with averseness to curb the galloping increase in current expenditure that would require reducing the size of the federal government, has brought the country to its knees in dealings with international creditors – be they multilaterals or bilaterals.
Dating back to 2018 the multilaterals (including the International Monetary Fund), were unwilling to compromise on one condition: the Pakistan government must ensure pledged assistance from bilaterals; this implied a withdrawal of IMF’s stated claim on its website that “in low income countries IMF lending is also typically meant to catalyse financial support from other donors and development partners”.
Ironically, friendly countries, China, the United Arab Emirates and Saudi Arabia, in turn, made the country being on a rigidly monitored Fund programme a prerequisite for the release of their pledged assistance.
Thus neither the multilaterals nor the friendly countries showed any degree of confidence in the government’s intent to undertake reforms that would typically end the existing elite capture – be it in terms of the budgeted allocations (with around 7 percent of the entire labour force that is employed by the government budgeted more than 50 percent of its annual outlay inclusive of pensions) or heavy dependence on indirect taxes for revenue source (with more than 70 percent of all revenue sources to indirect taxes whose incidence on the poor is greater than on the rich).
In this context, notwithstanding claims of high growth rates during their tenures, neither the 2013-18 Pakistan Muslim League-Nawaz (PML-N) government nor the 2018-22 Pakistan Tehreek-e-Insaf (PTI) government, implemented the much-needed reforms and sadly continued with policies designed to safeguard the elite capture of our economy evident from multiple amnesty schemes.
In addition, Ishaq Dar as the finance minister, damaged the economy irretrievably by controlling the rupee-dollar parity as well as relying on foreign loans at a time when rates were lower abroad than in the domestic market, which accounts for the country’s current high indebtedness payable in dollars that necessitates more borrowing.
China has emerged as the country’s largest creditor, in terms of rollovers and the payment in dollars as per contracts signed during the Nawaz Sharif’s premiership (2013-17).
The government is also wooing China to directly invest in Pakistan to further strengthen our foreign exchange reserves that are sourced almost entirely to debt. The prime minister’s dash to China just prior to the presentation of the budget, which reportedly has been deferred from 7 June, should therefore come as no surprise.
Some reports indicate that the Fund team which engaged with the government authorities on a successor programme to the just completed Stand-By Arrangement has, like in the previous two programmes, insisted that (i) the government seeks firm pledge from China to not only rollover more than 6 billion dollars for the duration of the next programme (which could be anywhere from 3 to 4 years) but also to (ii) seek a deferral of our contractual obligations as well as seek FDI that does not require sovereign guarantees (which must remain limited as per the Fund).
The current state of the economy is attributable to flawed policies, elite capture of resources and last but not least, lack of appropriate macroeconomic, power and petroleum sector policies.
One can only hope this will change for without meaningful reforms it is the general public that will continue to pay the price and its patience is clearly wearing thin.
Copyright Business Recorder, 2024