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Fiscal space for CPEC projects

Fiscal space for CPEC projects

FORTUNATELY, the Nawaz government, the opposition and the military establishment are in a rare harmony on the China-Pakistan Economic Corridor. However, the low-key role of the domestic private sector and the lack of effort to engage ordinary citizens to generate ownership and public goodwill necessary for an initiative of this magnitude is a little disturbing.

Besides other gaps in information regarding CPEC, experts believe that the government lacks a plan of action to provide the local financial component of billions of rupees for CPEC-related projects, keeping in view the IMF’s watch on the fiscal deficit.

Responding to a query on the flow of public funding for CPEC projects, the IMF’s Resident Representative for Pakistan, Tokhir Mirzoev, told Dawn in Karachi that he was not worried.

“It is our understanding that for CPEC projects the authorities are exploring various financing options, not all of which will affect Pakistan’s budget. In this context, we are particularly encouraged by the authorities’ efforts to strengthen transparency as well as analytical capacity of the Debt Policy Coordination Unit of the finance ministry.”

Some experts expressed concern over the style of governance in the ruling party, which tends to monopolise power and detests widening the base of decision-making.

“China’s system is highly centralised but still they have created a host of forums — national, regional and international — to explain, engage and involve the private sector, civil society and experts on its ‘one belt one route’ vision and the evolving strategy to implement it. For them, CPEC is kind of a new pioneering Silk Route project in the region,” said one expert.

“In democratic Pakistan, with a long history of real misrule leading to widespread suspicion over the government’s moves, any initiative that is not transparent and lacks involvement of credible representatives of the civil society and the private sector is unlikely to result in an unqualified success,” he argued.

“The initiation of projects, with little information publicly available on their evaluation, approval, funding, guarantees, monitoring and tracking, increases the chances of misconceptions and controversies. The burden is on the government to deal with the impression that cronies will be allowed to clinch the most lucrative business deals,” he insisted.

Planning Minister Ahsan Iqbal dismissed the muted criticism from certain quarters. Talking to this writer in Karachi, he did not try to veil the government’s excitement over ‘the lifetime opportunity’ that he believed would enable the country to quickly remove major stumbling blocks in power and logistic infrastructure and help it capitalise on its huge resource base to catch up with fast developing nations.

The Planning Commission (PC) is hosting a week-long consultation with its Chinese counterpart, the National Development and Reforms Commission (NDFC), in Karachi. A 60-member Chinese delegation is participating in the marathon meetings that include visits to key projects at Port Qasim, Gwadar and Thar.

The PC officials ruled out direct media interaction with key members of the Chinese delegation, including NDFC Vice Chairman Wang Xiaotao, as they said the Chinese side was not comfortable interacting with independent media. “They have requested to keep low for fear of any controversy,” a responsible PC member told this scribe anonymously.

On the issue of financing CPEC projects, Ahsan Iqbal said the government was committed to comply with its understanding with the IMF on the fiscal deficit. “Worries on this count are baseless; everything will be managed in time.”

In a recently issued factsheet, the Institute of Policy Reform highlighted this aspect. It stated that the “IMF has, in a subtle way, signalled its concern over CPEC. The basic issue is that of the ‘fiscal space’ to absorb the CPEC infrastructure projects. Clearly, there would need to be a big hump of public investment… The rise in public investment would necessitate a big rise in the PSDP and a corresponding upward adjustment in the size of the fiscal deficit”.

Former finance minister Shaukat Tareen felt the concerns raised by the experts were pertinent.

“Sorry, but I see no effort on the part of the government to engage business leaders or experts on CPEC. They like to go solo. Narrow political goals guide their strategy. They are aiming for low-hanging fruits and using this new stream of investment to put sufficient power in the national grid for favourable 2018 election results,” he said over phone.

“Raising the rupee component will be a challenge as there are limits on public spending in a low-revenue generation environment and the banks are too heavily invested in government papers to spare resources for private-sector lending. It does not mean that we are at a dead end. There are ways to deal with the liquidity crunch if instead of relying on a few confidants the government engages with the society for a way out.”

He also warned that “the cost of faltering on CPEC would be too high and the assumption of China’s limitless tolerance could backfire”.

Published in Dawn, Business & Finance weekly, November 16th, 2015

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