Committee for the Abolition of Illegitimate Debt

The proponents of CPEC call it a game-changer for Pakistan and this region, but people and several economists here remain skeptical about the opaqueness of projects under CPEC and particularly of the terms and conditions of loans Pakistan is acquiring from China under this grand project. [2] For govt. CPEC is Viagra to Pakistan economy, for experts it is another form of “ East India Company”. It needs a broader analysis to have a clear picture.

An objective overview suggests CPEC is not a gift from Beijing to Pakistan, rather a complicated set of infrastructure investments that will be paid for mostly by Pakistani investors, consumers, and taxpayers in the form of commercial loans from Chinese banks paid back by Pakistani power generation companies and the government, and electricity tariffs paid by ordinary Pakistani consumers.

The total CPEC cost is around $46 billion: $35bn is allocated for energy projects while $11bn is for infrastructure development; such as Gwadar port development, industrial zones and mass transit schemes etc. On top that an additional amount of $8.5 billion of investment from Beijing as part of the countries’ joint energy, transport and infrastructure plan has also been finalized, making the total cost close to $55 billion. [3] Major portion of this money is supposed to come from Chinese private banks.

The energy sector worth an investment of $ 35 billion is important area to look into and independent power producers (IPPs) the real players are bringing coal from China despite Pakistan having huge resources of its own coal. Which means China using these projects to dump its coal in Pakistan. [4] These IPPs have also bound the government of Pakistan to buy electricity from their power houses for at least 30 years whether it needs it or not, at lot more expensive rates than the international rates or than the electricity already being produced in the country.

Some economists are of the view that availability of the energy does not mean a sudden booster to local economy and compulsory buying of electricity from IPPS would generate another vicious circle of circular Debt. [5] Infrastructure development with low level of economic activity and at the cost of accumulation of loans is a not a good deal. Pakistan is already repaying loans at an average of $5 billion per anum and further loans means a disaster for its economy. Pakistan lacks capacity to repay CPEC loans and the next global economic crisis may knock Pakistan back into a recession.

Thanks to low oil prices coupled with borrowed foreign exchange, Pakistan economy shows comparatively better indicators although momentarily. The real crisis, will hit when all of the loans Pakistani energy companies have borrowed from China, come due. The power plant payments, tariff payments, capacity payments and loan repayments would exert a lot of pressure and Pakistan economy or exports are not in a good health to bear it.

But the government of Pakistan is in no mood to consider this side of the argument and trying to convince the people not to worry about repayment obligations because it is not public debt, rather private loan being acquired by the private companies from Chinese banks.

On the other hand for China CPEC provides an alternate secure route to import energy and find new markets for its goods and services. Almost 80% of the China’s oil is currently transported from Strait of Malacca to Shanghai, (distance is almost 16,000 km and takes 2-3 months), with Gwadar port becoming operational, the distance would reduce to less than 5,000 km. This would be a great strategic benefit for China. However, for Pakistan it would definitely help counter Indian influence in the region, position itself as a major transit point connecting Eurasian region with South Asia and South East Asia.

The objective analysis suggests that the only growing demand in Pakistan at present is for language translators, while Chinese language course centers have also emerging in the big cities. Meanwhile the government has also announced to make Chinese language as part of the curriculum in government schools. However, mere Chinese language is not enough to integrate and secure the dividends, unless technological capacity of the local universities, related to quality researches, is not built.

New East India Company?

Although Chinese companies are investing a lot more as compared to the British East India Company, their character is entirely different. They are bringing in entire equipment and technology, supervisory, and skilled labor manpower from China. That means that the multiplier effect of infrastructure spending will go to Chinese companies instead of local Pakistani people.

As Exim Bank of China and China Development Bank are already lending huge sums for CPEC projects to Pakistan, a Shanghai based consortium has just bought a 40% share Share A unit of ownership interest in a corporation or financial asset, representing one part of the total capital stock. Its owner (a shareholder) is entitled to receive an equal distribution of any profits distributed (a dividend) and to attend shareholder meetings. in the Pakistan Stock Exchange (PSX) for $85 million and will soon take charge of its management. [6] The size of market capitalization of the PSX currently is around $100 billion. [7] With this growing Chinese financial influence on Pakistani rulers, the authority of the IMF IMF
International Monetary Fund Along with the World Bank, the IMF was founded on the day the Bretton Woods Agreements were signed. Its first mission was to support the new system of standard exchange rates.

When the Bretton Wood fixed rates system came to an end in 1971, the main function of the IMF became that of being both policeman and fireman for global capital: it acts as policeman when it enforces its Structural Adjustment Policies and as fireman when it steps in to help out governments in risk of defaulting on debt repayments.

As for the World Bank, a weighted voting system operates: depending on the amount paid as contribution by each member state. 85% of the votes is required to modify the IMF Charter (which means that the USA with 17,68% % of the votes has a de facto veto on any change).

The institution is dominated by five countries: the United States (16,74%), Japan (6,23%), Germany (5,81%), France (4,29%) and the UK (4,29%).
The other 183 member countries are divided into groups led by one country. The most important one (6,57% of the votes) is led by Belgium. The least important group of countries (1,55% of the votes) is led by Gabon and brings together African countries.

http://imf.org and World Bank World Bank
WB The World Bank was founded as part of the new international monetary system set up at Bretton Woods in 1944. Its capital is provided by member states’ contributions and loans on the international money markets. It financed public and private projects in Third World and East European countries.

It consists of several closely associated institutions, among which :

1. The International Bank for Reconstruction and Development (IBRD, 189 members in 2017), which provides loans in productive sectors such as farming or energy ;

2. The International Development Association (IDA, 159 members in 1997), which provides less advanced countries with long-term loans (35-40 years) at very low interest (1%) ;

3. The International Finance Corporation (IFC), which provides both loan and equity finance for business ventures in developing countries.

As Third World Debt gets worse, the World Bank (along with the IMF) tends to adopt a macro-economic perspective. For instance, it enforces adjustment policies that are intended to balance heavily indebted countries’ payments. The World Bank advises those countries that have to undergo the IMF’s therapy on such matters as how to reduce budget deficits, round up savings, enduce foreign investors to settle within their borders, or free prices and exchange rates.

is likely to be reduced in coming years and the Chinese ruling class has good chances to emerge as a kind of new imperialist power in this region.

So far CPEC seems a big illusion; instead of reducing poverty it would probably increase the exploitation and unemployment. If huge infrastructural projects could have reduced poverty and misery there should be no poor in China and India. Chinese trucks would roll on the road from Kashgar to Gawader, while Pakistan has to take care Care Le concept de « care work » (travail de soin) fait référence à un ensemble de pratiques matérielles et psychologiques destinées à apporter une réponse concrète aux besoins des autres et d’une communauté (dont des écosystèmes). On préfère le concept de care à celui de travail « domestique » ou de « reproduction » car il intègre les dimensions émotionnelles et psychologiques (charge mentale, affection, soutien), et il ne se limite pas aux aspects « privés » et gratuit en englobant également les activités rémunérées nécessaires à la reproduction de la vie humaine. of maintenance and security of the road from its own pocket. This is not a good proposition.

The plan of new industries to be built along the CPEC route seems a dream as people are still waiting for the industrial zones promised to be built along the Motorway many years ago. It is claimed that CPEC project will create some 700,000 direct jobs by 2030. However, instead of creating new jobs, it is feared that CPEC may lead to the closure of local industry in Pakistan, which will not be able to compete with their Chinese rivals.

CPEC and Pakistan Debt

As part of CPEC, the govt. of Pakistan is securing loans worth approximately $11 billion from Exim Bank of China and the China Development Bank for infrastructure projects. Moreover, on top of that the government has secured an additional $8.5 billion of investment from Beijing as part of the countries’ joint energy, transport and infrastructure plan. Thus increasing the current foreign debt from about $ 73 billion to around $ 92.5 billion.

The IMF has also warned that CPEC could add to Pakistan’s medium- and long-term risks, predicting that the country’s gross external financing needs would rise to $15.1 billion in 2018-2019 from $11.4 billion in the current financial year. [8]

However, the current govt. position is that “as the economy grows, our capacity to undertake the responsibilities of repayments also improves”. Its policy is to go for higher spending through reckless borrowing. By avoiding bitter decision of reforms it is busy making the electorate happy. During last three and a half years current government has accumulated an unprecedented amount of both external as well as domestic debt, contracting $34.6 billion of new foreign loans since 2013, according to State Bank data.

The cumulative public debt stock Debt stock The total amount of debt has increased from around Rs.14, 600 billion on June 30, 2013, to Rs20.272 billion as of end-December 2016, an increase of 40 per cent or nearly Rs.5, 700 billion. According to renowned economic expert, Dr. Ashfaq Ahmad, Pakistan’s financial requirements are getting higher by every year.

In the current budget 2016-17, Pakistan’s financial requirements amount to $15 billion; including $7billion current account deficit and $ 9 billion for debt serving, next year 2017-18, this amount would be $ 18 billion and by 2019-20, Pakistan would be requiring $22.5 billion; $10 billion for debt serving and 12.5 billion for current account deficit. The total external debt is expected to rise from current $ 73 billion to $110 billion by 2019-20.

This is a horrific picture by all means. Pakistan may be facing a Greece like situation. CPEC may not help Pakistan to meet its financial requirements in near future. The current economic infrastructure of Pakistan has not that much capacity to take maximum benefits from CPEC. It will take time. Therefore, strong chances are there Pakistan will have to go back to IMF next year.

But the govt. obsession with CPEC is so strong; that it is like ‘national anthem’ for them and all the politics ruling elite revolves around it. The real issues of unemployment, poverty, inequality, education and healthcare have been put on the back burner. Speaking against CPEC is almost taboo now.