Pakistan’s economic challenge

Thinking beyond CPEC

By Pranay Kotasthane (@pranaykotas)

The Dawn editorial (10th December) makes a case against Pakistan’s overreliance on CPEC to solve its economic woes.

there are multiple roads to integration, and placing all the emphasis on CPEC alone risks putting too many eggs in one basket. [The Dawn, 10th December 2016]

CPEC has been projected as a panacea for Pakistan’s economic woes. A Deloitte report from earlier this year estimated that:

if all the planned projects are implemented, the value of those projects would exceed all foreign direct investment in Pakistan since 1970 and would be equivalent to 17% of Pakistan’s 2015 gross domestic product. It is further estimated the CPEC project will create some 700,000 direct jobs during the period 2015–2030 and add up to 2.5 percentage points to the country’s growth rate. [Deloitte]

Unsurprisingly, the potential benefits accruing from CPEC have been played up by sections of the Pakistani press, government, and the army. Among other things, two separate force formations, each comprising of more than 15000 security personnel, have been mobilised in order to ensure security for the project and for Chinese workers. And as Khurram Hussain highlighted in another Dawn article titled ‘Hidden costs of CPEC‘, the cost of these forces is now being bundled into the power tariff and passed on to the consumers.

Thus, The Dawn editorial accurately identifies the need to think beyond CPEC. It suggests two alternatives: change in the terms of the FTA with China, and increasing trade with Iran, beginning with the natural gas pipeline. However, both these alternatives are unlikely to solve Pakistan’s economic woes for the following reasons.

A renewal of the FTA with China in no way reduces Pakistan’s dependence on China. Pakistan has already acceded unusual diplomatic and political maneuvering space for China in a bid to revive its economy. Take, for instance, the conduct of Muhammad Lijian Zhao, a Deputy Head of Mission at China’s Islamabad embassy, who single-handedly fends off the mildest of reservations against CPEC by Pakistanis on Twitter. It is unusual that the concerns of Pakistani citizens, instead of being addressed by the provincial government of Balochistan or the Federal Government, are being swatted off by a Chinese bureaucrat.

Images such as these common on Twitter

Building a China—Pakistan friendship narrative: Images such as these are common on Twitter

The issue of raising a Special Security Division also reflects Chinese domination in the China—Pakistan equation. Raising a special division for Chinese projects and nationals, in regions where ordinary Pakistanis themselves fear for their lives, is further stoking alienation.

The opening of trade with Iran, without a peaceful settlement of political issues in Balochistan and Afghanistan, is also an unfeasible alternative. Pakistan’s economic growth centres are near its eastern borders (in Punjab and Sindh) and any trade with Iran will have to pass through the troubled western areas. Thus, it is unlikely that trade with Iran will take off unless Pakistan addresses the aspirations of the Baloch, and stops its overt and covert support for the Afghan Taliban.

What might resolve Pakistan’s economic challenge, then? Moeed Yusuf suggests that Pakistan has no option but to open up economically to India.

He makes an excellent argument:

Even when we add up realistic appraisals of possible reforms, includes CPEC, and factor in new export markets Pakistan can tap, we still end up well short of what the country needs to keep competing with India and other peer countries.

More importantly, it is absolute, not relative, gains that matter. We need to be concerned about the additional growth we would generate from acting as a trade and transit hub for the near and far neighbourhood and the force-multiplier effect it would have rather than what India or others might get out of the arrangement. Plainly, the new chief must know that keeping the region closed guarantees that India and Pakistan’s differential will continue to grow in New Delhi’s favour. [Dawn, The Chief’s Choice]

Alas, it’s is a tragedy that even major geoeconomic decisions of Pakistan need approvals of the army chief.

[Also read my post Thoughts on India’s approach to China’s 1B1R initiative on how India should look at CPEC]

Pranay Kotasthane is a Research Fellow at The Takshashila Institution. He is on twitter @pranaykotas

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