CPEC Financing: Is Pakistan Being Ripped Off By China?
Is China ripping off its all-weather friend Pakistan by charging high interest rates on loans and exorbitant guaranteed returns on investments in China Pakistan Economic Corridor (CPEC) projects? That's a question that is being asked on a frequent basis by Pakistan's friends and foes alike. While friends of China-Pakistan ties are concerned about an undue burden on Pakistanis, the foes see CPEC as an opportunity to create a lot of fear, uncertainty and doubt about it and its benefits for Pakistan's economy and society. Who's right? Who's wrong? Why? Let's dive into it.
Claims by CPEC Detractors:
Many Western and Indian opponents claim that the cost of CPEC financing will be so high that Pakistan will not be able to bear it. They assert that China is attempting to catch Pakistan in a debt trap from which the country will not be able to escape, eventually turning it into a Chinese colony. The financing costs for Chinese loans and investments they claim are in high teens.
Misguided Pakistani Analysts' View:
Many well-meaning Pakistanis, including serious economists, seem to echo detractors' claims without any serious examination or comparison with prevailing bench-marks. They do not mention how similar projects in other parts of the world are financed and what sort of interest rates and return-on-equity are guaranteed.
CPEC Finance Rates vs Benchmarks:
About two-thirds of Chinese CPEC funding is for power projects while one-third is for infrastructure projects like roads, rail lines and ports.
The Chinese soft loans for CPEC infrastructure projects carry an interest rate of just 1.6%, far lower than similar loans offered by the World Bank at rates of 3.8% or higher.
Chinese companies investing in Pakistan power sector are getting loans from Chinese banks at commercial interest rates. These loans will be repaid by the Chinese companies from their income from these investments, not by Pakistani taxpayers.
The rate of return guaranteed by Pakistan power regulators to the Chinese power companies is about 17%. Is it too high, as some claim? Let's compare it to the US market considered among the safest investments in the world.
Rate of Return in United States:
The average return on equity for almost 8,000 US firms is 14.49%. The power utility companies – with an average of 10.13% – are on the lower end of the spectrum because they are viewed as less risky investments.
In the United States, rate of return varies significantly from state to state, as each state regulator has exclusive authority to regulate utility operations as they choose.
In Advance Energy Economy (AEE) Power Portal database, which tracks ROE for over 100 investor-owned utilities across the country, the highest allowed ROE belongs to Alabama Power Co., at 13.75% while the lowest belongs to United Illuminating Co. (CT) at 9.15%.
Within the US states, Alabama being seen as relatively less safe for investment, offers 13.75% return. So why is it such a surprise to see Pakistani regulator offer Chinese investors a higher rate of return of 17%?
Growing Infrastructure Gap:
Development of physical infrastructure, including electricity and gas infrastructure, is essential for economic and social development of a country such as Pakistan. China-Pakistan Economic Corridor financing needs to be seen in the context of the large and growing infrastructure gap in Asia that threatens social and economic progress.
Rich countries generally raise funds for infrastructure projects by selling bonds while most developing countries rely on loans from international financial institutions such as the World Bank and the Asian Development Bank to finance infrastructure projects.
The infrastructure financing needs of the developing countries far exceed the capacity of the World Bank and the regional development banks such as ADB to fund such projects. A recent report by the Asian Development Bank warned that there is currently $1.7 trillion infrastructure gap that threatens growth in Asia. The 45 countries surveyed in the ADB report, which covers 2016-2030, are forecast to need investment of $26 trillion over 15 years to maintain growth, cut poverty and deal with climate change.
Summary:
China is financing CPEC projects at rates that are comparable to similar projects elsewhere. Chinese loans for infrastructure projects such as rails, roads and ports are at rates (2% or less) below those (3.8%) offered by the Asian Development Bank and the the World Bank. The rate of return on power project investments under CPEC is 17%, somewhat higher than the 13.75 offered by much safer US state of Alabama.
Development of physical infrastructure, including electricity and gas infrastructure, is essential for economic and social development of a country such as Pakistan. China-Pakistan Economic Corridor financing needs to be seen in the context of the large and growing infrastructure gap in Asia that threatens social and economic progress.
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| CPEC Projects in Pakistan |
Claims by CPEC Detractors:
Many Western and Indian opponents claim that the cost of CPEC financing will be so high that Pakistan will not be able to bear it. They assert that China is attempting to catch Pakistan in a debt trap from which the country will not be able to escape, eventually turning it into a Chinese colony. The financing costs for Chinese loans and investments they claim are in high teens.
Misguided Pakistani Analysts' View:
Many well-meaning Pakistanis, including serious economists, seem to echo detractors' claims without any serious examination or comparison with prevailing bench-marks. They do not mention how similar projects in other parts of the world are financed and what sort of interest rates and return-on-equity are guaranteed.
CPEC Finance Rates vs Benchmarks:
About two-thirds of Chinese CPEC funding is for power projects while one-third is for infrastructure projects like roads, rail lines and ports.
The Chinese soft loans for CPEC infrastructure projects carry an interest rate of just 1.6%, far lower than similar loans offered by the World Bank at rates of 3.8% or higher.
Chinese companies investing in Pakistan power sector are getting loans from Chinese banks at commercial interest rates. These loans will be repaid by the Chinese companies from their income from these investments, not by Pakistani taxpayers.
The rate of return guaranteed by Pakistan power regulators to the Chinese power companies is about 17%. Is it too high, as some claim? Let's compare it to the US market considered among the safest investments in the world.
Rate of Return in United States:
The average return on equity for almost 8,000 US firms is 14.49%. The power utility companies – with an average of 10.13% – are on the lower end of the spectrum because they are viewed as less risky investments.
In the United States, rate of return varies significantly from state to state, as each state regulator has exclusive authority to regulate utility operations as they choose.
In Advance Energy Economy (AEE) Power Portal database, which tracks ROE for over 100 investor-owned utilities across the country, the highest allowed ROE belongs to Alabama Power Co., at 13.75% while the lowest belongs to United Illuminating Co. (CT) at 9.15%.
Within the US states, Alabama being seen as relatively less safe for investment, offers 13.75% return. So why is it such a surprise to see Pakistani regulator offer Chinese investors a higher rate of return of 17%?
Growing Infrastructure Gap:
Development of physical infrastructure, including electricity and gas infrastructure, is essential for economic and social development of a country such as Pakistan. China-Pakistan Economic Corridor financing needs to be seen in the context of the large and growing infrastructure gap in Asia that threatens social and economic progress.
Rich countries generally raise funds for infrastructure projects by selling bonds while most developing countries rely on loans from international financial institutions such as the World Bank and the Asian Development Bank to finance infrastructure projects.
The infrastructure financing needs of the developing countries far exceed the capacity of the World Bank and the regional development banks such as ADB to fund such projects. A recent report by the Asian Development Bank warned that there is currently $1.7 trillion infrastructure gap that threatens growth in Asia. The 45 countries surveyed in the ADB report, which covers 2016-2030, are forecast to need investment of $26 trillion over 15 years to maintain growth, cut poverty and deal with climate change.
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| Pakistan Country Report in Shanghai Business Review Feb/March 2016 |
Summary:
China is financing CPEC projects at rates that are comparable to similar projects elsewhere. Chinese loans for infrastructure projects such as rails, roads and ports are at rates (2% or less) below those (3.8%) offered by the Asian Development Bank and the the World Bank. The rate of return on power project investments under CPEC is 17%, somewhat higher than the 13.75 offered by much safer US state of Alabama.
Development of physical infrastructure, including electricity and gas infrastructure, is essential for economic and social development of a country such as Pakistan. China-Pakistan Economic Corridor financing needs to be seen in the context of the large and growing infrastructure gap in Asia that threatens social and economic progress.
An unrelenting campaign of fear, uncertainty and doubt (FUD) about China-Pakistan Economic Corridor (CPEC) has been unleashed in the media in recent weeks. This strategy harkens back to the aggressive marketing techniques used by the American computer giant IBM in the 1970s to fight competition. Part of the motivation of those engaged in FUD against CPEC appears to be to check China's rise and Pakistan's rise with its friend and neighbor to the north. As in IBM's case, the greatest fear of the perpetrators of FUD is that CPEC will succeed and lift Pakistan up along with rising China. Their aim is to preserve and protect the current world order created by the Western Powers led by the United States at the end of the second world war. Pakistani government should respond to the FUD campaign against CPEC by countering it with facts and data and increasing transparency in how CPEC projects are being financed, contracted and managed.
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https://www.voanews.com/a/china-calls-pakistan-cpec-fastest-and-most-effective-of-bri-projects/3951874.html
China says its large economic collaboration program with Pakistan has entered “the stage of early harvest", making it the “fastest and most effective" among all projects in Beijing’s Belt and Road Initiative, or BRI.
President Xi Jinping launched the China-Pakistan Economic Corridor, or CPEC, two years ago, during his landmark visit to Islamabad. Cooperation has since cemented decades-old relations between the traditionally close allies.
China is investing about $60 billion on a network of roads, railways, fiber optic cables, energy pipelines, industrial clusters and special economic zones in Pakistan.
The corridor will link China's western region of Xinjiang to the Pakistani port of Gwadar on the Arabian Sea, giving the Chinese region the shortest trade route to international markets.
China's acting ambassador to Islamabad, Lijian Zhao, says that 19 CPEC projects worth about $19 billion are either completed or in progress.
“CPEC, as a pilot and major project of BRI, is now the fastest and most effective project among all the projects under the BRI,” he told a seminar in Islamabad.
He described the cooperation as an “unprecedented undertaking” in the history of China-Pakistan relations.
Economic cooperation connected to CPEC has employed thousands of Pakistanis and officials anticipate tens of thousands more will be hired in the next few years.
Gwadar is in Pakistan's Baluchistan province, where deadly attacks on CPEC workers have taken place in recent months.
Some critics in Pakistan have raised concerns about the viability of CPEC, while others have questioned its implications for the country. But officials dismiss the skepticism as unfounded.
“Despite (the fact) there is this criticism and noises here and there, after this four years of hard work and joint efforts of both countries, the CPEC has not been affected by those noises. I can report to you that CPEC is going on very well on the ground,” said the Chinese envoy. He did not elaborate further.
Most of the CPEC projects are in Baluchistan. Pakistani officials allege rival India’s intelligence agency is behind the militant attacks in the province in an attempt to sabotage the Chinese investment.
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“May I point out, unfortunately, our eastern neighbor (India) has publicly announced its opposition to CPEC. The grounds they give for their opposition are baseless,” Janjua noted.
She went on to denounce India’s opposition as “appalling” for a project that she said would bring development and prosperity to the people of Kashmir.
“China and Pakistan stand shoulder to shoulder in developing CPEC on the agreed time lines. We will continue to march ahead with complete determination, ignoring the negative voices and forcefully responding to any threat to CPEC,” said Janjua.
The Pakistani military has deployed thousands of security personnel to guard the projects and protect Chinese experts and workers.
China has also rejected reported U.S. concerns China plans to turn Gwadar into a Chinese naval base.
Major infrastructure projects being established in the Chinese-funded port of Gwadar include a Free Zone and a new international airport that will be operational by next year, officials say.
While new highways are being built and existing roads upgraded to link areas under CPEC, a coal fired power plant in the central city of Sahiwal has recently been completed, adding 1,320-megawatts of electricity to Pakistan's national grid.
A second 1,320-megawatt coal fired power plant in the southern port city of Karachi is expected to be inaugurated by November at an estimated cast of about $2 billion.
China is also focusing on upgrading Pakistan's railways, increasing average speeds to about 180 kilometers an hour from the current average of 80 kilometers an hour, said Chinese envoy Zhao.
One Lifebelt, One Road
China makes Pakistan an offer it cannot refuse
https://www.economist.com/news/special-report/21725101-leg-up-all-weather-friend-china-makes-pakistan-offer-it-cannot-refuse
MOVE OVER, DUBAI. Some day soon, cruise ships will disgorge frolicking pensioners not by the palm-fringed Persian Gulf but on the balmy Pakistan Riviera. From the muddy delta of the Indus to the barren Baloch coast, a twinkling constellation of attractions is set to rise: luxury hotels, water parks, golf courses, health spas, yacht harbours, night clubs, the works. To top it all, this “vacation product” will be developed in such a way that “Islamic culture, historical culture, folk culture and marine culture shall all be integrated.”
Or so promises a prospectus, drafted for the Chinese government by the China Development Bank, that sets out a detailed vision of the China-Pakistan Economic Corridor (CPEC). Billed as a flagship of China’s $900bn One Belt, One Road initiative to build an Asia-wide infrastructure system tying China more firmly to its markets, CPEC promises to inject some $60bn of Chinese investment into Pakistan. More than half is earmarked for power generation, but there is plenty left over for roads, seaports, airports, fibre-optic cables, cement factories, agro-industry and tourism.
For a country that has struggled to nudge its capital-investment ratio to 15% of GDP—compared with around 30% for India and 28% for Bangladesh in recent years—this gush of Chinese money comes as a godsend. Not only does it promise to energise the economy and fix such problems as chronic power shortages; it represents a strategic insurance policy against India. China has long been Pakistan’s chief arms supplier, and has quietly provided diplomatic cover and technical aid for its nuclear programme. As Chinese officials are fond of saying, China is an “all-weather friend”—unlike America, which has lavished some $78bn in economic and military aid on Pakistan since independence, but periodically gets stingy when Islamabad fails to curb terrorists.
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India views China’s spreading footprints next door with dismay. Officials put on a brave face. The Chinese are naive, say some, and will end up getting stung by Pakistan’s generals just as the Americans did. Others hope that once China discovers how far Pakistan’s deep state is entwined with Islamist radical groups, it will show less patience than the Americans.
Privately, however, Indian officials worry that Pakistan’s new patron may play the same role as America once inadvertently did, or as Pakistan’s nuclear deterrent still does: to allow Pakistan to sustain the awkward status quo. “Indian leaders have always calculated that sooner or later Pakistan would have to seek a normal relationship with us,” says Ashok Malik of the Observer Research Foundation, a Delhi think-tank. “CPEC gives them a new narrative: it puts them in China’s sphere.”
China seems to be grabbing most of it (solar panels). “The US and Europe are taking measures to protect themselves against Chinese dumping. We (Indians) have instead offered them a direct train to the Indian market. The government must ring fence Indian firms to allow them to grow,” says Chaudhary.
Miles away in Delhi, Rakesh Kumar Yadav shows you another Chinese-flavoured world. He is the president of the Federation of Sadar Bazar Traders Association. The umbrella platform for The umbrella platform for 83 other associations with 35,000 wholesale traders does business worth over Rs 3,000 crore annually and employs at least 100,000 people directly and indirectly.
About a decade back, the traders often used to source products — toys, plastic buckets, idols of Indian gods, among others — from domestic manufacturers. In toys alone, Yadav knows many Indian manufacturers who employed 500-plus people and were their suppliers. “They have all shut down and now import from China. Cheaper and better Chinese imports have wiped out the domestic industry,” says Yadav.
On the border, India is trying to ward off Chinese aggression. In the cold Himalayan plateau, temperatures have shot up as an old political rivalry heats up. India and China are sparring over the Doklam tri-boundary area (the third country being Bhutan), near Chicken’s Neck which connects India’s north-eastern states to the rest of the country. Shrill calls for a boycott of Chinese goods are getting louder, with the Rashtriya Swayamsevak Sangh (RSS) and its affiliate, the Swadeshi Jagran Manch, ..
Read more at:
http://economictimes.indiatimes.com/articleshow/59611452.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst
https://www.reuters.com/article/us-woodside-lng-idUSKBN1A50KT
MELBOURNE (Reuters) - A plan by top global liquefied natural gas (LNG) exporter Qatar to ramp up output will stall the expected growth of U.S. LNG exports, the head of Australia's Woodside Petroleum, operator of the country's biggest LNG plant, said.
Qatar surprised rivals this month when it lifted a self-imposed ban on development of the North Field, the world's biggest natural gas field, saying it would boost LNG output by 30 percent to 100 million tonnes a year in five to seven years.
That put it on course to it wrest back the title of the world's top LNG exporter from Australia, which is set to overtake Qatar in the next two years.
Woodside, operator of the North West Shelf project, said Qatar's plan showed the emirate shares its outlook for solid demand growth for LNG and gives importers like China, India, Pakistan and Bangladesh the supply certainty they need to lock in gas expansion plans.
"The Qataris will not take up all of the available market," Woodside Chief Executive Peter Coleman told Reuters in an interview on Thursday.
Qatar's expansion plan will compete directly with Woodside, which is looking to develop the Browse and Scarborough fields off Western Australia within the next decade - its so-called Horizon 2 projects - by processing gas through the North West Shelf plant or other existing facilities.
"On the challenge side, low cost will get into market, and that's what we're doing with our Horizon 2 projects. We're trying to make sure they're low cost, and they're well positioned, because we're targeting the Asian market," Coleman said.
Projects that will find it harder to compete will be those that need billions of dollars in new infrastructure and coal seam gas-to-LNG projects that need continuous capital spending to drill new wells, he said.
The International Energy Agency last week forecast the United States would become the world's second largest LNG exporter by the end of 2022, but Coleman said the Qatari expansion would stymie that growth.
"It'll keep a lid on U.S. expansions, because U.S. expansions are transportation-challenged," he said.
U.S. LNG flows largely into the Atlantic market, where it competes against pipeline gas from Russia and Norway.
Giving a major relief to Pakistan, which has been facing chronic shortage of energy, severely limiting economic development, the United States will support Pakistan to add at least 3,000 megawatts of clean power generation infrastructure to Pakistan’s national electricity system by 2020. The U.S. assistance to Pakistan is being provided under U.S.-Pakistan Clean Energy Partnership, through which the USAID will support capacity building, technical assistance, USAID Development Credit Authority financial guarantees, business-to-business sales arrangements, and the construction of transmission lines to private projects to stimulate increased levels of private investment in clean power.
The U.S. has already made more than 2,400 megawatts available to Pakistan’s electricity grid, benefiting some 28 million Pakistanis, and has helped Pakistan take steps to reform its troubled energy sector since 2009. The U.S. has also funded the refurbishment or construction of nearly 1,100 kilometers of roads, enabling trade, security, and mobility.
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“The U.S. Agency for International Development’s (USAID’s) on-budget investments in energy generation, facilitated by the Energy Policy Program (EPP), contributed to increasing generation capacity, energy production, and the reliability of power. EPP helped Pakistan develop the contractual framework that led to the first importation of liquefied natural gas,” report says.
It further says, “In 2016, the United States continued to focus on five sectors determined in consultation with the Pakistani government in 2011. Energy, economic growth including agriculture, stabilization of areas vulnerable to violent extremism, education and health with emphasis on improving democracy, governance, and gender equity are integrated into programming across the five sectors”.
The report stated that U.S. assistance has helped Pakistan improve governance and management systems, and increase the country’s distribution companies’ revenue collection by more than US $400 million, as well as provide commercial opportunities for U.S. businesses. The United States continued to fund infrastructure rehabilitation projects, especially in clean energy, and provided technical assistance to Pakistani energy institutions, including distribution companies, to increase power generation and improve performance.
The U.S. has also trained more than 5,600 police and 1,000 prosecutors across Pakistan; provided scholarships to approximately 15,000 Pakistanis to attend Pakistani universities, 50 percent of whom were women; and supplied better access to comprehensive family planning services to more than 100,000 women since 2009.
In 2016, the United States continued to build strong cooperation with Pakistan, including through U.S. assistance, as a stable, secure, prosperous, and democratic Pakistan is in the long-term U.S. national security interest.
By Don Watson
https://www.britishcouncil.org/voices-magazine/critical-thinking-western-concept
Educators agree that critical thinking is a crucial skill for the 21st century, but is it harder to teach in some cultures than in others? Burmese educationalist Win Aung argues that critical thinking has a longer history in the East than many have recognised. The British Council's Don Watson reports.
According to IBM, 90 per cent of the data in the world was created in the last two years.
In order to make sense of this explosion of information you need to be able to tell the difference between wisdom and sophistry, between timely words of warning and interest-driven scaremongering. That power of analysis is what’s called critical thinking. It is defined by the Critical Thinking Community as the ability to check for ‘clarity, accuracy, precision, relevance, depth, breadth, significance, logic, and fairness’, to build knowledge from a range of sources, including your own experience.
Does an emphasis on critical analysis of information mean that one part of the world will be better equipped to learn the skills necessary for success? Received wisdom indicates that critical thinking is embraced more enthusiastically in the West than it is in the East. Politics, tradition and religion have, according to this view, formed a powerful triumvirate which conspires to leave half the world with an approach to knowledge that relies on rote learning, and regards questioning as anathema.
Dr Win Aung, a consultant with 30 years’ experience of working in education in Burma, accepts this view has some foundation in day-to-day life. It is particularly evident in a country still struggling to emerge from the shadow left by decades of authoritarian rule, but it is by no means the whole story.
‘We do have a more vertical and hierarchical model of society,’ Win Aung says. ‘Myanmar is largely still a country where the father rules in the home and the teacher rules in the classroom.’ But, he argues, the notion that critical thinking is a foreign concept is not just misguided, it is factually wrong.
‘Certainly in the Buddhist tradition, which is influential across the whole of Southern and Southeast Asia, there is a strong tradition of critical thinking. Some of the fundamental tenets of the Buddhist tradition are essentially an early version of critical thinking,’ he says. ‘The Buddha taught freedom of thought and freedom of enquiry to his disciples. The emphasis is on internal reflection and consideration of the value of a proposition, rather than on blind belief’.
So why is rote memorisation a predominant way of learning in Burma? The answer, Win Aung says, is partly down to the structure of the Buddhist religion. ‘The fact that Buddhist teachings are recorded in the Pali language, which does not have a writing system, puts a great emphasis on the ability to absorb and recite correctly, which consequently gained a value in the East that it was never accorded in the West’.
https://worldview.stratfor.com/article/big-power-little-sri-lanka-india-china-rivalry
When it comes to this periphery, one particular concern for New Delhi is Sri Lanka's Hambantota deep sea port project. This new port and others at Gwadar in Pakistan, Chittagong in Bangladesh and Djibouti constitute the Indian Ocean leg of China's 21st Century Maritime Silk Road. And ever since construction began in Hambantota in 2008, China has taken on an increasingly prominent role in the project, which includes not only the $1.4 billion port but also an airport, numerous highways and an as-yet-unbuilt 15,000-acre industrial zone. Initially, Sri Lanka intended to build the project with massive Chinese loans and operate the port on its own, but it has confronted the difficulty of making the port profitable. Thus, in late 2016, Colombo announced a potential deal to trade an 85 percent stake in the project, which would include a 99-year lease on land there, to China Merchants Port Holdings in exchange for $1.1 billion in debt relief. Sri Lanka is $8 billion in debt to China, and over one-third of its government revenue goes to servicing that debt.
Domestic tensions over India's involvement in Trincomalee will only continue. And ultimately, the revised deal with China over Hambantota will not end competition over Sri Lanka and its ports. After the tumultuous conclusion of the Sri Lankan civil war in 2009, the country was left internationally isolated and at odds with India. New Delhi notably did not offer Colombo substantial assistance in defeating the Tamil Tigers, and Sri Lanka instead relied on Chinese, Pakistani and Iranian involvement. In the wake of these events, restoring a balance between patronage from India and other nations does not mean Colombo will be making a full tilt toward New Delhi. Moreover, India simply does not have the economic heft or state control of businesses needed to assist Sri Lanka in the way that China does.
On a broader scale, the regional rivalry between China and India grows ever stronger, as the two nations push for dominance over their shared border and India's various neighbors. But direct military confrontation between Beijing and New Delhi is extremely unlikely, and the tensions will instead play out in nearby countries. Bhutan, for example, has already been caught up in this rivalry with the ongoing Doklam Plateau crisis. East Africa, too, has become the target of an early stage Indo-Japanese attempt to counterbalance China's infrastructure initiatives. For its part, Sri Lanka appears to have used its political savvy to square the circle for now, but the country will no doubt remain involved in the affairs of India and China in the future. And while being sandwiched between two great powers can be a precarious position for a small nation like Sri Lanka, the country has proved itself adept at playing these powers off one another for its own benefit.
https://www.thenews.com.pk/print/218706-CPEC-to-create-trading-bloc-of-three-billion-people
CCIEE Chief Economist Ms Wenling Chen, who was keynote speaker, showcased the CPEC as key example of what BRI stood for and frequently referred to the game-changer while explaining BRI to participants of the roundtable. She cited CPEC as an excellent example of intergovernmental coordination.
She highlighted the role of OBOR in global economic integration, explained the driving forces and objectives of BRI, underlined the interaction and mutual support between BRI and other components of global trade governance and how BRI can strengthen and guard multilateral trading system.
Ms Wenling Chen said BRI is for cooperation, peace, and mutual benefit of all the 60 plus countries involved in this initiative. She said OBOR is about connectivity, quality intra-governmental coordination, infrastructure development, trade, investment, global supply chains, financial integration and ultimately for elimination of poverty and development of whole region and 2 world at large.
While commenting on BRI, Dr Tauqir Shah gave Pakistan’s perspective on the CPEC as an early harvest component of BRI. He said OBOR is immensely important for the Global economy and critically significant for Pakistan.
“The CPEC, a US $54 billion initiative, has all the vital elements of economic development like - transport, highways, railways, ports, urban metro, industrial parks, information technology, last but not the least energy - considerable part of this is renewable energy.”
The ambassador said the CPEC is proving to be a game-changer for Pakistan and the region, and will be a bridge between three engines of growth, - China, South Asia and Central Asia.
While highlighting economic significance of CPEC for Pakistan, he said the country had a four to five thousand MW energy deficit in 2013, which is 25% of its total generation capacity; and it was costing us 2% of GDP growth. “This development deficit needed an initiative of “Big Bang Scale”, like - CPEC. It is a set of 55 projects - 75% of funding is for providing 17000 MW of energy, over next ten years. This includes solar, hydro and Wind energy projects, many of these being foreign direct investment of Chinese private sector.”
Dr Tauqir Shah said the CPEC has created opportunities for everyone. The solar and wind energy projects have wind turbines and other components from Europe. “Our solar projects have consultants for quality assurance from Germany. During 2016, exports from Europe to Pakistan increased by more than 20%, from US $4.2 billion to $5.2 billion, primarily due to increased economic activity resulting from infrastructure development through CPEC.”
Citing another example to show the impact of CPEC on economy, he said that spurred by the CPEC infrastructure projects, Pakistan’s cement industry is expected to increase its capacity by 56 % to 70 million tons in next five years; Pakistan’s cement sector profitability grew 17pc in the last one year on account of higher domestic demand - credit to the construction sector as of Dec 2016, increased by 26pc.
The ambassador said the speedy implementation of the CPEC and the economic stimulus brought about by it has led to increase in demand of cement across Pakistan. Majority of existing cement plants in Pakistan are expanding, and licenses to set up 10 new plants has been given to foreign investors—mostly foreign direct investment.
He said that the hallmark of the CPEC is the north south highway and rail link, designed to link Arabian Gulf coast of Pakistan at Gwadar in south, to north western Chinese region of Xinjiang and Kasghar, thus reducing the distance of China’s northwest from Arabian Gulf from 14000 kilometers to 2500 kilometers, transforming the trade cost for whole region. “We firmly believe the CPEC will result in increase in trade, investment and financial flows, bringing peace and prosperity to the region and even beyond.”
https://www.dawn.com/news/1345414
In a detailed look at the China-Pakistan Economic Corridor (CPEC), the International Monetary Fund (IMF) cautions that corridor projects will generate outflows of as much as $4.5 billion by 2024, while the export benefits of the projects “will likely accrue gradually over time”. Filling the gap in between could pose a policy challenge.
“These considerations warrant policymakers’ attention to two priority areas in order to realise the transformational potential of Pakistan’s investment programme while maintaining external stability,” the IMF report says.
The first challenge is to ramp up export revenue and build foreign exchange buffers, which “will be important to cushion the period of increased BoP outflows”. Ramping up exports will require “improving competitiveness and the business climate” in order to realise the potential benefits from the increased energy supplies and transport infrastructure that the corridor projects will create.
The second big challenge is bringing “full cost recovery” in power distribution. “Routing the increased generation capacity through a loss-making distribution sector could result in faster accumulation of circular debt and fiscal costs, as well as undermine long-term financial sustainability of the new energy projects,” the report adds.
The report stops short of advocating a specific path for improving recoveries, but points towards greater private-sector participation in metering and recoveries while “maintaining a strong and enabling regulatory framework”. The language could be aimed at the government’s proposed reforms to the Nepra Act that seek to parcel out many of the powers the regulator currently enjoys to the federal and provincial governments and their departments.
The report also cautions against going too far down the road of granting incentives to certain categories of investor. It urges the government to “rationalise and limit tax incentives and exemptions [and] maintain uniformity of the tax regime with respect to all investments” and ensure that new external commitments are in line with expected balance of payments trends.
The report notes the positive impact that CPEC projects can have on Pakistan’s economy. It says the direct impact of corridor projects on GDP will go from $2bn in 2017 to $4bn by 2024. By that point in time, the indirect, second-round impacts could commence, which could be “significant” but “will depend on many other supportive factors.”
The report notes that the investments coming under the early-harvest scheme could close Pakistan’s power deficit as 8,600MW are envisaged to be commissioned under CPEC over the next seven to nine years, out of a total capacity expansion of 24,000MW currently in the investment plan. “[T]his expansion will help eliminate Pakistan’s deficit of about 6GW in 2016 to a surplus as early as end-2018.”
https://www.dawn.com/news/1351945
A Chinese proposal to set up a refinery along with a downstream petrochemical complex near Karachi is advancing steadily as requests for 500-1,000 acres has been submitted to the provincial governments of Sindh and Balochistan.
The estimated cost of the project is about $4 billion.
This was disclosed by Federation of Pakistan Chambers of Commerce and Industry (FPCCI) President Zubair M. Tufail after a meeting with the visiting Chinese delegation, led by Ms Li-Jial, Director Tianchen Engineering Corporation (TCC), at the Federation House on Wednesday.
Ms Li-Jial and Mr Tufail agreed in principle to establish and exchange investment missions to further enhance trade relations between the two countries.
The Chinese asked for land in Karachi since they found rents in Gwadar Free Zone to be too expensive, Mr Tufail told Dawn. “Port Qasim does not have enough space for a project of this size,” he said. “So they have asked for land a few kilometres away or in the Hub area, which falls in Balochistan
They will go with whichever provincial government best facilitates their interests, Mr Tufail added. “Any of the two provincial governments give better deal they would go for it and this would be a win-win situation for both the countries.”
Mr Tufail said both the provincial governments are interested in this project but would depend how they make a land deal with the Chinese investors.
The complex envisions a number of jetties, a refinery with 10 million tonnes per year capacity, as well as downstream processing facilities for naphtha and its component chemicals. “Currently we are importing $2bn worth of these chemicals from the Middle East” Mr Tufail said, adding that the complex could help reduce Pakistan’s external deficit.
Building of the complex will take four to five years, he said, “since they’re starting from scratch”.
Talks on the proposal have been under way for over a year now, but the proposal has begun to take shape more recently with the formal submission of a request for land.
Ms Li-Jial speaking on the occasion said that TCC would like to invest in Pakistan to enhance investment opportunities.
“Over the years, China had been extending cooperation in different sectors of the economy in Pakistan and lately there had been a sudden jump in these relations for the mutual benefit of both countries,” she added.
The FPCCI president said that Pakistan could benefit from the TCC’s vast experience in oil refinery, energy, chemical complexes and other projects and explore investment opportunities mutually beneficial to both the countries.
https://tribune.com.pk/story/1484291/cpec-provides-avenues-target-100b-chinese-agri-market/
The China-Pakistan Economic Corridor (CPEC) is a golden opportunity for overall development of this region and Pakistan should reorganise its agriculture sector to get a major slice of the $100 billion worth of agriculture produce imports by China, suggested Muhammad Mehmood, Punjab Agriculture Secretary.
Speaking at the launch of a study on “CPEC – Prospects & Challenges for Agriculture”, Mehmood pointed out that nearly one-fourth of the world’s population was living in China and most of its exports would be routed through Pakistan after the completion of CPEC. “Containers full of exportable surplus will be sent to various international markets, but on their return, these containers will be empty and we must capitalise on the opportunity to export our surplus agriculture produce to China,” he said.
Mehmood revealed that per capita income of China was increasing substantially, bringing a visible change in people’s lifestyle and food habits there. “Like other affluent societies, they also prefer rich and costly food and fruits,” he said, adding Pakistan could get maximum benefit of the emerging change.
“We are concentrating on high-value crops and a 10-year programme has been evolved to develop one lakh acres of land in the Potohar region for planting grape and other high-value crops.”
Major Chinese importers will also be invited to utilise this land for growing high-value fruits in addition to developing the agriculture processing industry on modern scientific lines.
“Its trickle-down effect will provide an opportunity to our farmers to upgrade their technologies and develop agriculture as a profitable business by shunning centuries-old practices,” Mehmood said.
He told the audience that foreign consultants had been engaged to analyse why Pakistan had not been able to get its due share in Chinese imports despite its friendly relations and close proximity.
He suggested that Pakistan should renegotiate the bilateral trade agreement and a meeting was expected in the current or next month. After that, “we would be in a position to decide which strategy is suitable for Pakistan to enhance its share in Chinese imports.”
Responding to a question about a research project on the China-Pakistan agricultural technical cooperation, the agriculture secretary insisted that the Punjab Agriculture Research Board was extending liberal grants to the viable projects planned by the public and private sectors.
“Initially, Rs259 million had been allocated for this purpose. The funding was immediately increased to Rs750 million and it would be further enhanced to Rs3 billion in the next three years,” he said.
He asked the Faisalabad Chamber of Commerce and Industry president to send the project to the research board where a group of experts would review its viability and approve the requisite grant.
Never has Pakistan been so wooed. The original promised dowry, of $46bn in Chinese grants and soft loans for infrastructure projects, has only grown, to $62bn. This munificence is dubbed the China-Pakistan Economic Corridor (CPEC), launched amid fanfare in 2015, on a visit to Pakistan by President Xi Jinping.
Most of the money is earmarked for power plants to improve Pakistan’s notoriously unreliable electricity supply. The rest is going on roads, railways, dams, industrial zones, agricultural enterprises, warehousing, pipelines and a deepwater port in the coastal settlement of Gwadar. Some of the promised money is bound not to materialise, and the claim by the interior minister, Ahsan Iqbal, of “benchmarking” Singapore and Hong Kong when turning remote, dusty Gwadar into a container-shipping hub speaks more of hope than experience. Yet over $14bn has already been spent. CPEC is very different from earlier schemes, when co-operation was promised only to run into the sands.
For Pakistan, the scale of ambition is unprecedented—a “game- and fate-changer” as overwrought locals put it. If CPEC gets electricity and goods flowing efficiently, then growth could jump by over two percentage points a year, by one estimate. Better yet, CPEC could shift the national narrative—too often dominated by coups, extremists and a chippy kind of nationalism—towards economic construction.
What is in it for China is often misunderstood, especially by Sinophobes in Delhi, Tokyo and Washington. They make much of the “corridor” in the plan, concluding that China’s chief aim is to gain access to the Indian Ocean, the better to encircle India. In fact, argues Andrew Small of the German Marshall Fund, an American think-tank, improving transport links through the mountainous neck of land that joins Pakistan to Xinjiang province in China’s far west is one of CPEC’s lesser aims. Yes, Gwadar, as a port on the Indian Ocean, interests the Chinese navy, but would have done so regardless of CPEC. Most of CPEC’s investments are aimed at improving Pakistan’s domestic economy.
China does have strategic motives, of course. A more dynamic Pakistan would certainly act as a counterbalance to the deepening security relationship between India and America, which also provides military aid to Pakistan. Then there is Islamist militancy, which spills back into Xinjiang; development might, as Li Keqiang, China’s prime minister, put it, “wean the populace from fundamentalism”. China needs new markets for its products, as well as new terrain for infrastructure and industrial projects. Most importantly, CPEC has become the main plank of Mr Xi’s ambitious “belt-and-road” initiative, whereby improved infrastructure will help to strengthen economic ties and thus spread China’s influence through Asia and beyond. As Mr Small points out, CPEC has to be seen to work for the broader scheme to seem both credible and appealing.
Even if CPEC is not the neo-imperialist exercise its critics make it out to be, it still has its flaws. The IMF warns that Pakistan may struggle to repay China’s loans, which could in turn prompt a balance-of-payments crisis. Pakistan’s central bankers have in the past deplored a lack of transparency surrounding CPEC contracts; suspicion abounds that Pakistani taxpayers have been shortchanged. And security is a problem. Just one example is the new Chinese-funded road to Gwadar, which runs through an area long gripped by insurgency in the remote, backward province of Balochistan. Mr Iqbal argues that the road and the development it is bringing will help extinguish the conflict. It might equally pour fuel on it, if locals feel excluded.
https://www.thenews.com.pk/print/228626-ADB-says-Pakistan-enjoys-growth-despite-trade-contraction
Pakistan has experienced economic growth despite contraction in external trade, pointing to the movement towards the localisation of supply to serve domestic demand, Asian Development Bank (ADB) said on Friday.
The country, which is one of the most populous economies in the region, recorded a decade high growth of 5.3 percent during the last fiscal year of 2016/17.
Manila-based lender, in a report, said share of exports of goods and services in GDP has been decreasing during the last six years, while share of imports has been increasing during the period.
The country’s household consumption is growing year on year. It soared 6.9 percent during the last year, ADB said in its 48th edition of ‘Key Indicators for Asia and the Pacific 2017’ report. Share of household consumption expenditure to GDP ratio stands at 80 percent.
ADB’s statistical review provides data on a comprehensive set of economic, financial, social, environmental, and sustainable development goal indicators for its 48 regional members. The Bank said private sector offtake is on the upward trend.
Banking credit to private sector is, however, one of the lowest in the region as it accounts for half of GDP as compared to more than 100 percent in Fiji, Vietnam, China, Australia and Japan, its data revealed.
Nonperforming bank loans to GDP ratio is one of the highest at 10 percent, only less than Afghanistan and Maldives. The Asian Development Bank said Pakistan is one of the region’s four largest recipients of official development assistance and other official flows to the agriculture sector, amounting to $291.7 million in 2015.
Alone South Asia’s agriculture sector received nearly $1.5 billion in dole-outs during 2015. Agriculture sector’s value addition to GDP ratio stood at 24.6 percent in 2016 in the country where acreage covers half of its land.
Forest area covers a minuscule 1.9 percent of total land area, which is one of the lowest in the region. The country has been annually receiving an average $744 million as financial and technical assistance between 2008 and 2015.
Share of gross capital formation in GDP declined during the past six years. Non-infrastructure investment accounted for 63 percent of gross fixed capital formation. Meanwhile, President Takehiko Nakao at ADB said the bank would continue to lend financial and technical support to Pakistan to improve infrastructure and regional connectivity.
“There is an immense potential for regional connectivity projects in the CAREC (Central Asia Regional Economic Cooperation) region,” Nakao said in a statement on Friday. He met with Finance Minister Ishaq Dar in Urumqi, China.
The Bank further said external debt to gross national income ratio is one of the lowest in the region, standing below 50 percent. It said stock markets in Fiji, New Zealand, and Pakistan were the region’s top performers in 2016.
“In Pakistan, an improved growth outlook—supported by better security, macroeconomic stability, and strengthened economic fundamentals—was reflected in a sovereign rating upgrade from Standard & Poor’s and significant gains in share prices of 13.2 percent on an annual basis,” it added. ADB said more than half of urban population in Pakistan lives in slums, informal settlements or inadequate housing.
The proportion, however, slid 3.2 percent during the four years for which data is available, it added. Urban population living in slums in the country dropped to 45.5 percent in 2014 from 48.7 percent in 2000. India brought this proportion down to 24 percent from 41.5 percent during the period.
https://www.adb.org/sites/default/files/publication/357006/pak.pdf
Published on September 6, 2017
LikeCPEC Fears and My Response
Hamza Orakzai
https://www.linkedin.com/pulse/cpec-fears-my-response-hamza-orakzai
1. 91% of the income from Gwadar Port goes to the Chinese and 9% to Pakistan.
Reply: Can you kindly point out what's wrong with this model especially when all the liabilities and investments lie at their end? In past 7 decades, not only our government has failed to develop the port but also ignored the importance of its geostrategic location, and currently, doesn't have the resources to develop it even if they want to for next 3 decades or so. Every Pakistani still gets to use the port and enjoy the benefits from its development. The port is a window to the economic activity it will generate in the country.
2. Chinese companies get preferential treatment and tax exemptions (making it impossible for local companies to compete and opens the Pakistani market for a commercial invasion)
Reply: The statement is completely misleading. Only CPEC projects get tax exemptions, mainly in the power sector, because we are in dire need to mitigate the losses due to the energy crisis in Pakistan. Moreover, tax exemption also drives down the cost of building these strategic projects, which results in lower tariffs and repayments.
(Impossible is a strong word. Construction companies in Pakistan are working at their full capacity, turning down projects due to output issues. Commercial Invasion? I think mentioning special economic zones would be more relevant since the argument of building infrastructure has no correlation with the commercial viability of businesses.)
3. Money for the road network comes from Pakistan (so we're paying for the roads China will use to export stuff to us and the world)
Ans: Let me break the statement into 2 parts:
1) The Road; 2) The Money
1) The Road: The roads built under CPEC will be the property of National Highway Authority and will generate revenue through the toll tax. Moreover, as a Pakistani, will you want strategic roads in the country to be the property of a foreign country?
2) The Money: These projects are being built on Engineering-Procurement-Construction+Finance (EPC+F) Model. Finance comes from China and our government takes it as a concessionary loan. Same as ADB model. But the difference is that Chinese companies are mandated to complete these grand projects within 24-36 months. There needs to be open bidding for these projects, but then again, it will push the timeline of the CPEC to 30 years instead of 15 years.
4. Of the original $50b, over $30b was loans to build power plants for which we'll pay a) interest to Chinese banks b) exorbitant profits to Chinese companies who will build and supply to these plants c) guaranteed profits to the Chinese companies that will operate and own these plants d) backed by sovereign guarantee
Ans: This figure is completely incorrect. All the power projects under CPEC are BOOT (Build-Operate-Own-Transfer) basis which means that investment, loans, and liabilities are all the investor problems. Our problem is to pay for the electricity they produce. No loan has been acquired so far by the government of Pakistan for energy projects.
a) We have nothing to do with the interest rates.
b) Getting a payback for what you invested is a very fair request so don't know what's wrong with it?
c) Guaranteed profits because we have PKR 800 billion in circular debt? Why would anyone even want to invest? Would you?
d) Same as above.
5. We're making commitments to buy electricity at over 8 cents from coal-based plants and India is buying solar electricity at 4 cents (solar price is crashing every year). This will make our manufacturing uncompetitive for the next 15 years or longer.
Ans: We have a problem in this argument. First, we are comparing apples to oranges. The feed-in tariff for coal power plants is around PKR 8/Kwhr in India as well. Although it's a lengthy discussion,
ISHRAT HUSAIN
https://www.dawn.com/news/amp/1357043
The Chinese have voiced concerns regarding negative CPEC talk, security and red tape.
Under its One Belt One Road Initiative announced in 2013, China is planning to invest more than $1 trillion in 60 countries all over the world to establish six different corridors. The receptivity in other countries to this proposal has been anything but enthusiastic; however, some Chinese friends are puzzled by the sceptical and negative reactions from certain quarters in Pakistan expressed in the media, particularly on social media. This comes to them as a surprise because of the long uninterrupted record of strong bilateral relations between the two countries that were not even affected by changes in political leadership in either country. CPEC is the first project of its kind to foster economic cooperation on a massive scale for building large infrastructural projects in Pakistan.
Although realising that there are some external forces hostile to this initiative, Chinese analysts and participants are concerned about what they see as the misrepresentation of facts by many Pakistanis. It is not obvious to them as to what purpose is served by raising doubts and fears about CPEC in the minds of the Pakistani population. The aspersions being cast on the motives of the Chinese, such as the analogy with the East India Company or Pakistan becoming a satellite of China, are very unnerving: external detractors of CPEC pick up these reports and after bundling them as ‘risks’ of CPEC to Pakistan, disseminate them widely.
The Chinese argue that the IPPs have been a policy instrument for investment in Pakistan’s energy sector for a very long time. When the country was facing serious energy shortages no one else came to Pakistan’s rescue and invested in the sector. Now that China has come forward with a planned investment of $35 billion or 70 per cent of the total CPEC allocation under the same policy, questions are being raised.
Had it involved extraction of natural resources from Pakistan for the benefit of the Chinese, this criticism would have been justifiable. On the contrary, the benefits of this investment would be exclusively appropriated by Pakistan’s industries and households that would no longer face load-shedding while the country would record a 2pc annual rise in GDP growth.
Chinese state-owned companies, designated by the Chinese government based on their expertise and experience, are executing the projects with loans provided by government-owned banks on concessional terms both in tenor and pricing. In several projects, Chinese and Pakistani companies have entered into joint ventures. The repatriation of profits and debt-servicing in foreign exchange arising out of these obligations would become possible after an increase in the volume of exports as a result of the Chinese-Pakistani joint ventures relocating their industries to the Gwadar Free Economic Zone and the nine industrial zones to be established under CPEC.
In the opinion of some, the negative feelings can have unintended adverse consequences for the personal security of Chinese nationals working on these projects, particularly in some sensitive areas of Balochistan. Some elements unhappy with the Pakistani state and government and possibly acting at the behest of foreign powers hostile to CPEC appear to have created conditions in which the murders and kidnappings of Chinese nationals that were almost non-existent have begun to take place. Our interlocutors were grateful for the new division being raised by the Pakistan Army for protection of the Chinese; but the security risk is raising premiums for relocation to some of the vulnerable areas.
https://www.thenews.com.pk/print/231356-Long-term-plans-to-be-finalised-in-50th-CPEC-review-meeting
The long term Pakistan-China cooperation plan (2015-2030) will be finalised in the 50th China-Pakistan Economic Corridor (CPEC) 'review meeting' scheduled to be held today (Thursday) under the chair of Ahsan Iqbal, federal minister for planning and interior, a statement said on Wednesday.
“The meeting will finalise the long term plan in consultation with federal ministries and provincial governments, while ministry of railways will brief the meeting about the upcoming financing plan for the up-gradation of Mainline-1 (ML-1) from Peshawar to Karachi will be discussed,” the ministry said in the statement.
The ministry added that Pakistan and China were in the process of finalising the financing plan of $8.5 billion for the ML-1, whereas the next joint working group (JWG) meeting was expected to be held probably next month as the financing plan for the track was also expected to be finalised by November this year.
“Admitting the requirement for having overriding institutional framework to execute $46 billion China-Pakistan Economic Corridor (CPEC) under long term plan till 2030, Beijing and Islamabad have also agreed to build model industrial parks, each in all provinces, with Chinese financing of multimillion dollars,” the ministry said.
Moreover, it said that it was also under consideration to build model cities along the bank of Indus River, having a range of 300 kilometers, but it was yet to be seen as to how this ambitious plan was going to be finalised in a synergised manner.
“Officials from Chinese Embassy at Islamabad probably Chinese Ambassador, Chinese companies and officials from ministry of planning, line ministries and provincial governments would participate in the meeting,” the ministry said. It further said the forum would review progress on the ongoing projects including schedule and agenda of the next JWGs of energy, transport infrastructure, planning, and Gwadar. “It will further review the progress on consortium of business schools and Pakistan Academy of Social Sciences,” the statement said.
According to a recent report by the Pakistan Bureau of Statistics (PBS), Pakistan’s exports have shown a positive trend backed by rising exports via the value added sector. The growth pattern has been observed during the first two months of the current fiscal year 2017-18. The upward trend in the value added sector has given a significant boost to cummulative export numbers as the New Year kicked off.
Total exports during the two month period, July-August, increased to $3.49 billion as compared to $3.12 billion showing a growth of 11.8%. While the increase in non-textile goods has been registered at 23.5% reaching $1.31 billion during July-August 2017-18 versus $1.06 billion during the same period last year.
PERFORMANCE OF VALUE AND NON-VALUE ADDED TEXTILE EXPORTS
Readymade garments have given a major upward push to the overall exports pie increasing by 15.65% on a yearly basis reaching $418.63 million during July-August period. Garments in general have also surged by 16.4% showing volume based growth.
Another integral value-added product, knitwear managed to go up by 7.53% to reach $439 million during July-August. The volume based increase of knitwear exports was 8.23%. Additionally, bed wear exports grew by 8% amounting to $384.32 million while its quantity wise growth stood at 8.79%. Furthermore, the value based growth of towel exports showed 0.67% rise while its volume based growth was registered at 0.03%.
Conversely, the picture has not been equally nice for the intermediate goods like cotton yarn, as their exports slumped by 4% (value) and by 3.3% (volume). Deteriorating demand of cotton yarn and fabric from China is considered a crucial reason for their low sales. Another slump has been seen in the exports of cotton cloth, down by 7.8% in terms of value and quantity. Exports of raw cotton have also seen a downward trend with 14.7% in value and 14.15% in volume during July-August 2017-18.
A major blow has emanated from exports of non-value added products such as cotton carded, which dropped by a whopping 100% in value and volume. In addition, exports of tents and canvas declined by 22% in terms of value. On the other hand, exports of yarn slumped by 0.2% in value but increased in terms of volume.
Quick Read: When will Pakistani companies really value their human resource?
A GLANCE AT NON-TEXTILE EXPORTS
From the non-textile related goods, rice exports grew by a significant 40% during the two months. Basmati and other types of rice exports took a major leap.
From the food category, a major jump was seen in exports of wheat, sugar, fruits during the given period. Crude petroleum and petroleum naphtha registered a growth of 100% and 404% accordingly. Nonetheless, exports of sports goods and carpets saw a downward trend.
Value added leather products increased by 5.8% which was witnessing continuous slump during the last two years. Footwear showed a feeble growth of 0.1% during July-August 2017-18. Furthermore, surgical and engineering goods managed to rise by 26% and 23% respectively.
https://www.geo.tv/latest/159391-pakistan-exported-commodities-worth
The country earned US$ 512.3 million by exporting different food commodities during the first two months of the current financial year as compared the earnings of the corresponding period of last year.
During the period from July to August 2017, food group exports from the country increased by 30.6 percent as compared the exports of the same period of last year.
According to the data of Pakistan Bureau of Statistics, since the last two months exports of rice grew by 40 percent as around 428,993 metric tons of rice worth US$ 223.97 million were exported.
The rice exports, during first two months of last financial year, were recorded at 3810,861 metric tons, which were worth US$ 159.54 million, it added.
Meanwhile, the exports of basmati rice grew by 10.35 percent and about 59,433 metric tons of basmati rice, worth US$ 62.741 million, were exported as compared the exports of 59,192 metric tons, valuing US$ 56.857 million, in the same period, last year.
The exports of rice other than basmati also witnessed an increase of 58.98 percent, around 369.580 metric tons of rice costing US$ 161.198 million exported as compared to the exports of 251,669 metric tons worth US$ 102.888 million last year.
From July-August, 2017-18, fruit and vegetable exports increased by 8.74 percent and reached at 56,280 metric tons worth of US$ 20.58 million against the exports of 73,751 metric tons of US$ 18.88 million of the same period last year, it added.
The other commodities which witnessed an increase in their exports during the period under review include fish and fish production, which increased by 19.63 percent, wheat and sugar increased by 100 percent respectively.
It may be recalled here that imports of the food commodities into the country also witnessed an increase of 27.18 percent and about US$ 1.123 billion was spent on the import of different food items to fulfill the domestic requirements.
https://tribune.com.pk/story/1506672/pakistans-exports-china-will-r...
Chinese Ministry of Commerce Vice Minister Wang Shouwen said on Thursday that after conclusion and implementation of the second phase of China-Pakistan Free Trade Agreement (CPFTA), Pakistan will be able to expand its exports to China with the help of low tariff rates and attract more Chinese investment in the next five years.
“In the next five years, China will import products worth $8 trillion and once the second phase of our FTA is concluded and implemented, Pakistan will be able to expand its exports to China due to low tariff rates. In addition, Pakistan will also be able to attract more investment from China,” he said. He was speaking at the opening session of the eighth meeting of the second phase of FTA negotiations held at the Chinese Ministry of Commerce.
He said China was a huge market and home to 1.3 billion people and its domestic consumption was booming, adding economic and trade cooperation was the anchor and propeller of relations between China and Pakistan.
“In recent years, our cooperation has developed remarkably and benefited many enterprises and people in both the countries,” he added.
Terming CPFTA one of the earnest FTAs of China, he said it had played a significant role in promoting Sino-Pakistan cooperation and made China Pakistan’s largest trading partner.
He was of the view that the first phase of the FTA had given a lot of impetus to the economic and trade ties.
“However, with the trade liberalisation level of only 36%, there is still a huge space for both sides to raise the current level,” he said. “I believe a relatively high level of liberalisation will promote common development and provide benefits for more people of our countries.”
The vice minister said the leadership of the two countries attached great importance to the FTA negotiations. A statement of Chinese President Xi Jinping during his visit to Pakistan in April 2015 clearly pointed out that both sides had decided to speed up negotiations on the second phase of FTA, he added.
While reciprocating the warm feelings of the Chinese official, Federal Commerce Secretary Younus Dagha said, “China is now Pakistan’s major trading partner with volume of trade reaching an all-time high at $16 billion in 2016-17 from $4 billion in 2006-07.”
“However, keeping in view the respective sizes of the two economies, the gains for both sides should be equal,” he emphasised. Following the FTA, Pakistan’s trade deficit with China has widened markedly, surging from $2.9 billion in 2006-07 to $12.7 billion in 2016-17. Last year, Pakistan’s global imports grew 18.5% while exports edged down 1.6%.
He said imports from China alone accounted for 36% of Pakistan’s global non-oil imports.
Dagha underlined the need for sending positive signals to the people of both countries that benefits of the China-Pakistan Economic Corridor (CPEC) and CPFTA would be shared equitably and that the economy of Pakistan would be a major beneficiary.
Abbasi to impose fresh curbs on luxuries in effort to avoid devaluing rupee
https://www.ft.com/content/a495b148-a1d2-11e7-9e4f-7f5e6a7c98a2
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https://www.ft.com/content/a495b148-a1d2-11e7-9e4f-7f5e6a7c98a2
Pakistan plans to tighten curbs on luxury imports to ward off a foreign currency crisis without devaluing the rupee, Shahid Khaqan Abbasi, the prime minister, has said.
Mr Abbasi said he would rather place further controls on imports in an effort to preserve fast-dwindling foreign reserves than allow the rupee to fall against other currencies.
Some experts believe Pakistan will have to request another bailout from the International Monetary Fund within a year.
In March, the Pakistani government made it harder to import non-essential items such as vehicles, mobile phones, cigarettes and jewellery by insisting buyers put down 100 per cent of the cash upfront.
The measure drew criticism that it would encourage people to trade instead on the black market. The IMF said it had been told by Pakistani officials that the restrictions would be removed within a year but Mr Abbasi told the FT his government was planning to impose more.
“We can put regulatory duties on certain items, especially luxury finished goods, that’s possible,” he said. “We probably will do more of that, yes definitely, to discourage imports.
“Currency devaluation is not on the table, it’s not. A lot of people thought it was . . . [but] it is important to have stability for the rupee,” said Mr Abbasi.
Pakistan is running out of foreign currency as exports and payments from Pakistanis abroad fall while imports rise.
The central bank had $14.3bn of foreign reserves as of September 15, according to the most recent data — enough to cover exports for about three months. That is down from a high of $18.9bn last October.
Pakistan has been importing more than it exports for some time, but the problem has been exacerbated by having to buy Chinese supplies for projects as part of the $55bn China-Pakistan Economic Corridor.
While the scheme is aimed at improving Pakistan’s energy supply and transport networks, many economists believe that in the short term it will push Islamabad back towards the IMF.
“We will have to go back to the IMF any time now,” said Muhammad Zubair Khan, a former commerce minister who worked at the IMF for more than a decade. “The current situation is not sustainable.”
Sakib Sherani, a former economic adviser to the government, warned: “From a balance of payments crisis, we will have a full-blown macroeconomic crisis, where private sector sentiment is hit, growth stalls, inflation is high, and the central bank has to act.”
As well as restricting imports, the country has also borrowed money at short notice from various international lenders to pay off its debts. In 2016 and early 2017, Pakistan borrowed $1.2bn from state-backed Chinese banks.
Many economists believe the only long-term way out of the crunch is to allow the rupee to fall, encouraging exports and discouraging imports.
But doing so has become politically sensitive, with ministers insisting on a strong currency while central bankers warning of the likely consequences.
In July, the rupee suddenly fell 3 per cent, having traded in a narrow band since 2015. Central bank officials said they had backed away from shoring up the currency, but the move drew an angry response from the government, which stepped in to boost its value again before replacing the acting governor.
https://www.thenews.com.pk/print/322593-china-s-loans-to-pakistan-to-lift-debt-repayment-ability
Pakistan expects to obtain $1 billion to $2 billion of fresh Chinese loans to help it avoid a balance-of-payments crisis, Reuters reported. Some observers hope China's economic assistance will help the country avoid having to go to the IMF for a bailout, but the key issue is the sustainability of China's financial help.
China will not be stingy in offering help to Pakistan to strengthen its infrastructure, but China's bank loan is a market-driven commercial decision in line with international practices. The main point is Pakistan's debt repayment ability.
China-based financial organizations stick to a principle of not imposing additional political conditions when providing loans to other countries, distinguishing them from most Western financial institutions like the IMF.
This might be one reason why Chinese loans are welcomed in Pakistan. China is likely to continue to finance new projects in the country but will also assess their debt repayment ability to avert the risk of bad debt. After all, Chinese loans to Pakistan are not a gift.
The multi-billion dollar China-Pakistan Economic Corridor (CPEC) has begun to bring tangible benefits to Pakistan's economy, which is likely to boost Pakistan's debt repayment ability. It's possible that we're entering a virtuous cycle in which Chinese loans promote the development of the CPEC, and this then improves Pakistan's debt repayment ability. However, the South Asian country may need to propel economic reforms to ensure the effectiveness of the loans and allow the local economy to benefit more from CPEC projects.
It is hoped that people will learn a lesson from the IMF's operations. In 2013, the IMF approved a loan plan for Pakistan to support its program to stabilize and rebuild the economy, but the multilateral lender failed to strictly monitor the use of the loans, and in the end they did little for Pakistan's economic development.
Now Pakistan's economy is on an upswing with the help of Chinese loans. Nadeem Javaid, who advises Prime Minister Nawaz Sharif's government and works closely on the CPEC program, was quoted by Reuters as saying last year that debt repayments and profit repatriation from CPEC projects will reach $1.5 billion to $1.9 billion in 2019, rising to $3 billion to $3.5 billion by the following year.
China is likely to strengthen economic collaboration with Pakistan under the CPEC program, in a bid to ensure the effectiveness of the loans. The key to stronger cooperation between the two countries lies in how to improve Pakistan's economic innovation capability and allow the country to develop its own capacity for long-term economic sustainability.
China's loans to Pakistan essentially aim to drive Pakistan's economic development, and thus the loans should be offered in a way that aligns with the local economy and helps restructure the South Asian economy and boost its manufacturing and exports.
by Aasim Sajjad Akhtar
(Jun 01, 2018)
Topics: Political Economy
Places: Asia , China , Pakistan
https://monthlyreview.org/2018/06/01/the-china-pakistan-economic-corridor/
U.S. imperialism has played an unambiguously destructive role in Pakistan for most of the country’s seventy-year history. Aside from decisively empowering the military establishment, its support of religious militancy in the 1980s precipitated a complete transformation of the body politic. The secular political traditions of other societies in the region were similarly undermined by the rise of millenarianism, with Afghanistan worst affected. Today Washington seeks to maintain its waning influence in the region through a zero-sum strategic game that has seen India, Pakistan, Iran, and Afghanistan pitted against one another, forcing their own people to bear the cost.
In this context, China’s claim to advance a development agenda that transcends the narrow geopolitical calculus that has long defined regional dynamics should be evaluated carefully. The biggest question mark in the OBOR strategy in South Asia remains Beijing’s frosty relations with New Delhi. Still, the volume of official trade between China and India totaled almost $71 billion in 2016—nearly six times that between China and Pakistan. Thus economic ties are expanding despite the Modi government’s nationalist posturing. In any case, China’s growing economic and political role in the region necessarily means that the era of Washington’s unrivalled hegemony, especially in its longtime frontline state of Pakistan, has ended.
Yet the discussion above confirms the danger that China’s emergent hegemony represents more of the same for Pakistan’s long-suffering people, especially those from historically underrepresented ethnic groups. There has also been little evidence so far that the ideal of building an “ecological civilization” that has gained credence in China in recent years is anything more than an afterthought when it comes to Chinese investments in Pakistan.12
Even if one takes the rather blunt metric of CPEC financing, the rhetoric is far removed from reality. Of the $28 billion injected into Pakistan’s economy by late 2016 through CPEC’s “early harvest” projects, $19 billion was in the form of commercial loans. In the not-too-distant future, this portends yearly debt repayments of more than $3.5 billion.13 It is not at all clear, then, that China offers a financial alternative to the International Monetary Fund/World Bank juggernaut that has already saddled Pakistan with a foreign debt burden approaching $80 billion.
Perhaps most importantly, China’s seemingly apolitical developmental intervention is consolidating the existing structure of power in Pakistan, and in particular the military establishment that Washington helped make into the country’s dominant force. Recent events suggest China is exerting some pressure on Pakistan’s GHQ to break with the religious militants long used as proxies against India and Afghanistan.14 This would make sense, given China’s commitment to expanding market exchange through its infrastructural and other investments, and the attendant fear that these investments may be threatened by militant movements in Pakistan.
Even if peace were achieved overnight, however, the Chinese vision of “development” would not represent a genuine and sustainable alternative to neoliberal development practices as they have been institutionalized around the world. China’s intervention in Pakistan thus cannot be considered the progressive “other” to the destructive militarism—both state and non-state—that U.S. imperialism and domestic elites have imposed on Southwest Asia for decades.
Confessing to the Converted
By LANDON THOMAS JR.FEB. 19, 2006
https://www.nytimes.com/2006/02/19/business/yourmoney/confessing-to-the-converted.html
In an early scene that sets the tone for the book, he describes being seduced by a mysterious Catherine Zeta-Jones look-alike who called herself Claudine Martin and supposedly worked at Main. In an interview, he said she plied him with cocaine, red wine and ultimately herself. "We are a small exclusive club," she says in the book. "Your job is to encourage world leaders to become part of a vast network that promotes U.S. commercial interests. In the end, those leaders become ensnared in a web of debt that ensures their loyalty."
In the book, Mr. Perkins recounts the nine years in which he worked for Main in the 1970's. From Ecuador to Panama, Iran to Saudi Arabia, the mission was the same: working in league with government agencies, Mr. Perkins claimed that he inflated the economic growth forecasts of these countries and smoothed the way for the billions in loans that they took on. Ultimately, he said, the funds were recycled to the United States as these countries became clients of big American engineering, construction and manufacturing companies, including Bechtel, Halliburton, Boeing and others.
BUT in his telling, Mr. Perkins was constantly haunted by the feeling that he was in effect a hit man -- paid officially by his employer, Main Inc., but under the more oblique sway of the government and intelligence agencies. The son of a conservative New England family, he whips himself for having succumbed to pleasures of the flesh as well as the lure of money, influence and power.
In 1980, Mr. Perkins quit his job at Main. For much of the next two decades, he worked as a consultant, entrepreneur and specialist on the culture and practices of indigenous people of Latin America. After the terror attacks of Sept. 11, 2001, he said, he felt that it was time to tell his story. After being turned down by bigger publishers, Berrett-Koehler took a chance and published the book in 2004. A best seller in hardcover, despite few mainstream book reviews, the book has sold as many as 5,500 copies a week in paperback.
Mr. Perkins invests much of the story with earnest, pulpy touches. He writes of himself drinking beers and listening to Jimmy Buffett under magenta skies with beautiful women, meeting with disfigured dissidents in shantytowns outside of Tehran and absorbing the whispered warnings about the United States' imperial designs from Latin American leaders.
Michael M. Thomas, a former investment banker and novelist of Wall Street manners, says a book's success will often be determined more by its voice than its subject. And for now, Mr. Perkins's message of conspiracy carries the perfect pitch for many readers -- no matter how fantastic his conclusions may be.
"The odd side of our character is that we believe that dark powers are arranged against us -- call it the Da Vinci codes of finance," Mr. Thomas said. "But really, I never heard of anybody being assassinated for lack of taking a loan."
Indeed, for all the book's success, Mr. Perkins has faced numerous questions about the veracity of some of his dreamier contentions. Earlier this month, for example, the State Department released a brief report called "Confessions -- or Fantasies -- of an Economic Hit Man" that took issue with one of Mr. Perkins' primary assertions: that the National Security Agency, with a wink and a nod, was aware of and may even have approved Mr. Perkins's hiring at Main.
Source: Xinhua| 2018-06-08 13:35:15|Editor: Lu Hui
http://www.xinhuanet.com/english/2018-06/08/c_137239583.htm
ISLAMABAD, June 8 (Xinhua) -- Five years after its launch, the China-Pakistan Economic Corridor (CPEC) has achieved magnificent results that help lay a solid infrastructure foundation for Pakistan's economic development.
Under the long-term and systematic framework of CPEC, several projects in areas of energy, transportation infrastructure and port construction have been completed.
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Pakistan's Ministry of Energy said that the completed CPEC power projects have brought a great change in the energy sector by bringing the power cut hours to zero form 12-14 hours a day in 70 percent of the country.
Two coal-fired power projects equipped with the latest state-of-the-art environment-friendly technology -- the 1,320-megawatt Sahiwal coal-fired power project in the country's Punjab and the Port Qasim coal-fired power plant with the same capacity in southern port city Karachi -- have already started production.
The two projects are expected to generate 18 billion KWh of electricity together annually, which can cater for the needs of eight million local families.
The CPEC power projects not only have eased daily lives of Pakistanis but are also creating hundreds of thousands of jobs by helping restart the industries that were closed due to power shortage.
Besides the coal-fired power plants, CPEC also provides new energy to Pakistan so as to diversify the country's energy sources to maintain its energy security. Part of the Quaid-e-Azam Solar Park is functional and three wind power farms are also supplying electricity in southern Sindh province, while two such projects will also start their commercial operations later this year.
Pakistan's Ministry of Planning, Development and Reforms said that energy projects under CPEC will double the energy-thirsty country's current capacity of electricity production after their completion.
Yasir Rehman, an anchor from the official Pakistan Television, said that the developed infrastructure under CPEC is bringing stimulus to the Pakistani economy, creating jobs and improving business by starting a constructive process.
"Uninterrupted power supply is helping industries increase production, creating an ideal atmosphere for Pakistan's economy," said Rehman, adding that with the functionalized Gwadar port, CPEC will benefit every common Pakistani.
Gwadar, the ending point of CPEC, which was once an ignored small sluggish fishing town located at the Arabian Sea in Pakistan's southwest Balochistan Province, is now witnessing a wave of development projects which are creating new opportunities for employment and business.
Gwadar port, with the fully functional port terminal, regular cargo service, free zone, business center, is a symbol of future development and prosperity of Pakistan.
According to China Overseas Ports Holding Company (COPHC), the port's operator, some 20 companies in different businesses have already joined the Gwadar free zone with direct investment of 3 billion Chinese yuan (over 460 million U.S. dollars).
Gwadar's local people are feeling the development impetus triggered by the rapidly developing port, construction of new roads, establishment and upgrading of educational institutions and hospitals, construction of a new international airport and installation of water purification plants.
Thousands of people, from laborers to businessmen, have migrated from across the country to Gwadar to grab emerging opportunities for business and employment since the launch of CPEC.
In the meantime, CPEC has also brought major improvements and overhauls to Pakistan's transportation infrastructure by upgrading and reconstructing already existing roads and building new superhighways.
https://twitter.com/zlj517/status/1044321706033197058
At budget seminar today it was authoritatively disclosed that loans for CPEC projects are at LIBOR+ 4.5%+Insurance guarantee 7.5% ie nearly 14% interest. Can any economy borrow at this rate? Watch out! Absence of transparency undermining CPEC. Clarification needed.
https://twitter.com/FarhatullahB/status/1044256222852108288
http://web.isanet.org/Web/Conferences/HKU2017-s/Archive/a30ae7f2-83ba-4b48-b15c-3ebbe670d948.pdf
Research into the NEPRA archives has indicated that in July of 2015 [CPEC start, April 2015] there began a flood of petitions filed consecutively for inclusion of Sinosure fees into wind power project financing. For NEPRA, this amounts to an unmatched influx of pressure unseen anywhere else in their operating history, and presents compelling evidence both in frequency and qualitative content to move to withdraw support from the null hypothesis.
The NEPRA petition database shows a large uptick in requests that the Government of Pakistan capitulate to Chinese requirements to utilize insurance through Sinosure. For Chinese projects abroad, project insurance flows through one provider. This firm is the China Export and Credit Insurance Corporation/中国出口信用保险公司, or Sinosure. This State Owned Enterprise is China’s main insurer of export financing and provides protection for SOE’s and other large firms against political, commercial and/or credit risks operating or exporting abroad.
Critically, Sinosure coverage is mandatory insurance for Chinese overseas bank loan and equity investment. In other words, it is required for anyone outside China who wants access to this type of capital from Chinese actors.
In stark contrast to previous years of highly diverse NEPRA petition data, Sinosure related documents show a high degree of coordination. They are unwavering in noting that Chinese state-owned insurance for project funding is required for Chinese capital. Five separate petitions from firms note that “[…] Plea: Sinosure Insurance is a contingent requirement of Debt from China. It is approved by NEPRA for other Projects (Coal etc.). It is a mandatory cost for Chinese Debt and should be incorporated as a pass-through cost by NEPRA.”42 This exact language is found in each of the five petitions originating from distinct wind energy firms. Highly similar language to this is also found in a petition from the Government of Sindh, Directorate of Alternative Energy/Energy Department in Karachi, signifying coordinated inter-governmental and private sector pressure.43 Furthermore, Harbin Electric International, a Chinese State Owned Enterprise, filed its own petition to
https://nation.com.pk/31-Dec-2018/11-cpec-projects-completed-11-in-progress
$18.9 billion investment made so far have created 75,000 jobs
According to the latest progress report on CPEC issued by the Chinese Embassy in Pakistan, 20 more projects were in pipeline under CPEC, which was the largest and most comprehensive project under the Belt and Road Initiative (BRI), besides being of great political, economic and social significance to China and Pakistan.
For implementation of CPEC, the two sides have set up a ministerial-level Joint Cooperation Committee on CPEC Long Term Planning (JCC) and seven joint working groups on planning, energy, transportation infrastructure, Gwadar Port, industrial cooperation, social economic development and international cooperation. They also decided to establish Joint Working Groups on social economic development and international cooperation.
Out of 15 energy projects planned as priority with a total generation capacity of 11,110MW, seven have been completed and in operation, while another six are under construction with a total capacity of 6,910 MW.
At present, Zonergy 300MW Solar Park, 50MW Dawood Wind Farm, Jhimpir UEP wind power project, Sachal 50MW Wind Farm, Sahiwal 2×660MW Coal-fired Power Plant, Port Qasim 2×660MW Coal-fired Power Plant and Three Gorges Second and Third Wind Power Projects have been completed. These projects have added 3240 MW to the Pakistani national grid, amounting to more than 11% of the total installed capacity of 29,000 MW in the country.
CPEC energy projects are providing affordable energy to Pakistani consumers in a diversified way. The tariff of power plants has been sharply decreased from Rs 16-18 to around Rs 8 per unit. With the introduction of CPEC energy projects, Pakistan also reduced its heavy dependence on gas and LNG power plants, which account for 50% of total installed capacity. The CPEC energy projects are foreign direct investment and are executed in accordance with BO(O)T mode. Any debt arising from the CPEC energy projects would be borne by the Chinese investors instead of the Pakistani government.
Regarding infrastructure projects, the report said currently, three projects including KKH Phase-II (Havelian-Thakot section), Karachi-Lahore Motorway (Sukkur-Multan section) and Lahore Orange Line are under construction. The information highway for laying of an optical fiber cable (OFC) from Rawapindi to Khunjrab is in operation. These ongoing projects are funded by preferential loans from the Chinese government at around 2% interest rate with a total amount of 5.874 billion USD. The up-gradation of ML1 railway and the KCR are under discussion.
About Gwadar Port, it said up to now China Overseas Ports Holding Company (COPHC) has invested $ 250 million in the port renovation. Five new quay cranes, a 100,000 M2 storage yard, a seawater desalination plant with capacity of 220,000-gallon pure water/day, two sets of sewage disposal systems and cargo handling equipment have been installed and 80,000 M2 green space has been added to the port area. 400,000 tons of cargoes have been handled by Gwadar Port in 2017.
The Gwadar Free Zone is located in the northern part of Gwadar. The planned development period is from 2015 to 2030, and is divided into four phases. The 923-hectare Free Zone includes an initial area (25 hectares) and the northern area (898 hectares).
Around 30 companies have invested in the Free Zone, with direct investment of about $474 million. With the construction of the free zone, the city of Gwadar will become a commercial hub of the region in the near future. The construction of Gwadar East Bay Expressway project was started in November 2017 and would be completed in 36 months with the designed speed of 100 kilometers per hour
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Financing Run Down of 22 CPEC Projects
2018/12/29
https://pk.chineseembassy.org/eng/zbgx/t1625940.htm
PRETORIA (Reuters) - African countries running up debt they won’t be able to pay back, including to China, should not expect to be bailed out by western-sponsored debt relief, the United States’ top Africa diplomat warned.
The International Monetary Fund and World Bank began the Heavily Indebted Poor Countries (HIPC) Initiative in 1996 to help the world’s poorest countries clear billions of dollars worth of unsustainable debt.
But Africa is facing another potential debt crisis today, with around 40 percent of low-income countries in the region now in debt distress or at high risk of it, according to an IMF report released a year ago.
“We went through, just in the last 20 years, this big debt forgiveness for a lot of African countries,” said U.S. Assistant Secretary of State for Africa for African Affairs Tibor Nagy, referring to the HIPC program.
“Now all of a sudden are we going to go through another cycle of that? ... I certainly would not be sympathetic, and I don’t think my administration would be sympathetic to that kind of situation,” he told reporters in Pretoria, South Africa, late on Sunday.
Under Donald Trump’s administration, the United States has criticized China for pushing poor countries into debt, mainly through lending for large-scale infrastructure projects. It has warned those nations risk losing control of strategic assets if they can’t repay the Chinese loans.
Sri Lanka formally handed over commercial activities in its main southern port in the town of Hambantota to a Chinese company in 2017 as part of a plan to convert $6 billion of loans that Sri Lanka owes China into equity.
U.S. officials have warned that a strategic port in the tiny Horn of Africa nation of Djibouti could be next, a prospect the government there has denied.
From 2000 to 2016, China loaned around $125 billion to the continent, according to data from the China-Africa Research Initiative at Washington’s Johns Hopkins University School of Advanced International Studies.
And a number of African countries form part of China’s $126 billion Belt and Road Initiative to link China by sea and land through an infrastructure network with southeast and central Asia, the Middle East, Europe and Africa.
China has rejected criticism of its lending in Africa. And debt campaigners point to the fact that much of Africa’s current debt load consists of commercial debt to western financial institutions or Eurobonds, which are more expensive to service than Chinese loans.
“All of these countries are sovereign states, so it’s for them to decide who they want to trade with,” Nagy said. “We feel we have an obligation to point out to them when we believe they are getting into severe economic difficulties.”
https://www.scmp.com/news/china/diplomacy/article/3040982/sri-lanka-wants-its-debt-trap-hambantota-port-back-will-china
Critics view the deal as a symbol of the problems associated with Chinese lending and the Belt and Road Initiative, but Beijing so far shows little sign of changing its mind
Newly elected President Gotabya Rajapaksa promised on the campaign trail to revisit the agreement, but observers say he will need to offer China something else in return
Sri Lanka’s new government wants China to hand back a port it was given two years ago to cover its debts – but its chances of success appear slim.
The port, located at the heart of a busy shipping route in southern Sri Lanka, has been held up by critics as a symbol of the worst aspects of China’s “debt trap diplomacy” with many locals regarding it as a sign of subordination to Beijing.
Gotabaya Rajapaksa, brother of the former leader Mahinda Rajapaksa, was elected president last month after a campaign where he promised to undo the port deal.
“The perfect circumstance is a return to the norm,” Ajith Nivard Cabraal, a former central bank governor under Mahinda Rajapaksa, who is now serving as prime minister.
“We pay back the loan in due course in the way that we had originally agreed without any disturbance at all.”
But so far Beijing has given no indication that it will rethink its plans – instead suggesting that development plans for the port should be speeded up.
On Monday, Chinese diplomat Wu Jianghao met Gotabaya Rajapaksa to congratulate him on his election victory – but an account of the meeting by Xinhua indicated that the two countries should “speed up the implementation of cooperation on big economic projects, including the Colombo Port City and the Hambantota Port, under the existing consensus”.
Sri Lanka is not the only country in South and Southeast Asia where a new government has tried to renegotiate deals agreed as part of China’s Belt and Road Initiative.
But while Malaysia succeeded in renegotiating the contract to build the East Coast Rail Link, others such as Pakistan and Myanmar, have been less successful.
International observers said Sri Lanka’s ongoing reliance on international investment as it continues to rebuild after a lengthy civil war limited its scope to negotiate with China.
“The ability of a country to renegotiate deals would depend on its economic size, performance and strategic outlook,” said Amitendu Palit, an economist specialising in international trade and investment policies at the National University of Singapore said.
“Malaysia has been far superior in this regard. It is a middle-income country with a much stronger economy and is part of a stable regional order. Sri Lanka does not enjoy the same advantages
Sri Lanka’s debt is currently 78 per cent of its GDP – one of the highest ratios in South and Southeast Asia.
Between 2010 and 2015, China lent the country about US$5 billion for infrastructure projects including Mattala Airport – which has been widely criticised as a white elephant – and the Hambantota port.
By 2018, Chinese lending to the country had reached US$8 billion, according to the International Monetary Fund.
Sufian Jusohm, an international trade and investment professor at the National University of Malaysia, said the Sri Lankan government would need to offer China an alternative if it wanted to revise the deal.
“Sri Lanka may revoke the lease but risks paying compensation to the Chinese company for expropriating the port. In addition, this will result in a diplomatic conflict between the country and China,” he said,
“In any event, Sri Lanka may be able to persuade China to agree to a review if it can offer an alternative deal.”
Dr Safdar Sohail, Special Secretary Cabinet Division, was the first convener of the Joint Working Group on Industrial Cooperation when the CPEC was conceived and materialized into billions of dollar projects.
He also disclosed that both sides decided to establish Industry CooperationFund but that was never materialized. Dr Safdar remained affiliated with the CPEC at different positions in the past. He was the lead negotiator on CPEC Long Term Plan and then served as the founding Executive Director of CPEC Center of Excellence.
He made these bold and blunt remarks during a one-day dialogue on industrial cooperation under the CPEC and SEZs framework arranged by the Board of Investment here. Dr Safdar said he was using the harsh word of “stunting” for the CPEC Long Term Plan because it failed to achieve the strategic institutional thickening.
He said corporations on both sides joined hands with the help of some political elites and a handful of bureaucrats, channelizing their investments into such ventures where the short- term benefits were personalized and long-term risks were socialized.
Dr Safdar further said the titled CPEC LTP agreed in November 2017 did not lend itself to any kind of 'mutually constitutive' development alliance. “This 'aspirational plan’ actually is an amalgamation of old China-Pakistan Cooperation Agreement, LTP Outline MoU and Draft Production Capacity MoU 2015, leaving Chinese and Pakistani LTP aside” he added.
“It was a bad luck for the LTP process that the mid-level officials of NDRC coordinating the Early Harvest Program (EHP) had also taken in their hands to conclude the LTP. They were somehow averse to accepting any long-term commitments with Pakistan, he added.
Now, he said both sides had the new terms of second phase, without clearly speaking what the first phase was and without evaluating the performance of the first phase under the CPEC.
For way forward, he suggested that there was a need to create conditions for a reset of CPEC starting with the vision and goals, setting new priorities and new framework of a Long Term Strategic Economic Partnership between Pakistan and China.
Without a major upgradation of governance capacity, he said the chances of optimally benefitting from the CPEC would continue to be slim. But, CPEC could not wait for an overhaul of the whole governance apparatus. Therefore, there is a need to go for a selective institutional thickening both at the federal and local level which has a demonstrated capacity of being effective, he added.
For industrial development, he suggested enhancing governance capacity of trade and investment officers, aligning Development Policies and internal policy reform agenda with CPEC by building industrial infrastructure and upgrading Regulatory and Policy Support System e.g. early establishment of already approved Exim Bank and Land Port Authority of Pakistan, adopting a strategic Industrial Policy; choosing champions but also defending legitimate interests of the local industry, upgrading the Business Environment, reducing litigations, frauds, managing land issues, security, enhance ease of doing business, preparing for bigger inflows of Chinese aid, re-socializing Pakistani firms and policy community towards China and overcoming synergy deficit among government ministries through greater collaborative efforts.
https://www.thestar.com.my/news/regional/2020/04/10/china-pakistan-economic-corridor-to-be-enhanced-in-2nd-phase-says-pakistani-official
The China-Pakistan Economic Corridor (CPEC) is making steady progress, and its scope will be further enhanced in the second phase, the chairman of the CPEC Authority in Pakistan said.
The industrial development, agriculture, food security, science and technology, and tourism will be the major sectors in the second phase of the multi-billion-dollar project, Chairman Asim Saleem Bajwa said in a tweet on Wednesday.
Many projects focusing on infrastructure and energy sectors in the first phase of CPEC have been completed and are already operational, and work on the second phase is underway.
Talking to Xinhua, Vaqar Ahmed, joint executive director at the Sustainable Development Policy Institute, an Islamabad-based think tank, said the foreign direct investment by Chinese companies in the special economic zones under CPEC, is expected to be the major contributor to the uplift of Pakistan's economy in the post COVID-19 scenario.
The process of formation of joint ventures between the private sectors of the both countries has already been initiated, and will get a further boost when things got back to normal after the disease is defeated.
COVID-19 economic hit gives China little choice but to help cash-strapped allies
https://asia.nikkei.com/Spotlight/Belt-and-Road/Pakistan-request-opens-door-for-Belt-and-Road-project-debt-relief
Pakistan's plea last month to China for Belt and Road Initiative debt relief has opened the floodgates for other participating countries to make similar appeals as the impact of the coronavirus slams friendly economies with traditionally close ties to Beijing.
Islamabad sought the extension of a debt repayment period on $30 billion in loans for the China-Pakistan Economic Corridor, or CPEC, the flagship project in the massive BRI infrastructure-building program. China agreeing could save Pakistan around $500 million in annual cash flow.
"Pakistan looks forward to Chinese support in dealing with this unprecedented situation arising out of this pandemic," Abdul Hafeez Shaikh, the finance and revenue adviser to Prime Minister Imran Khan, said in a statement, referring to the debt relief request.
Now, many countries in Asia and Africa participating in the BRI -- sometimes styled as a modern version of the ancient Silk Road and a key pillar of China's strategy of expanding its global influence -- have requested China provide similar help.
Mohan Malik, a professor of strategic studies at the National Defense College of the United Arab Emirates, said that from Beijing's perspective, Pakistan is not only an important ally, but the CPEC is also too significant to be allowed to fail. "Should Pakistan's economy go under without a financial rescue package, it would deal a major blow to President Xi Jinping's signature initiative," he told Nikkei Asian Review, referring to the BRI.
Malik added that the collapse of economies in friendly BRI countries amid the pandemic and the resultant sociopolitical instability would jeopardize China's foreign policy goals and damage Xi's political legitimacy. "For long-standing allies like Pakistan, Cambodia, Laos, Djibouti, and Sri Lanka, China is likely to provide some debt relief by either reducing loan interest rates or suspending interest payments in favor of principal-only payments," Malik added.
Experts believe that China has no choice but to provide the requested debt relief to protect its larger BRI projects.
Andrew Small, a senior transatlantic fellow at the German Marshall Fund of the U.S., thinks that Beijing will have to provide some form of debt assistance, the only question being what kind. "[Beijing] has already accepted the freeze on repayments from least-developed countries but [it is] facing pressure to take more comprehensive steps rather than conducting a vast series of bilateral negotiations," Small told Nikkei.
He argues that China being the origin of the coronavirus also compels it to help its allies. "[The current economic crisis] is a shock that stemmed from the Chinese government's own failings, so Beijing is even more politically on the back foot than it would be if the virus didn't have its origins in China," he said.
Nevertheless, providing general relief to all Belt and Road countries is not seen as feasible. Malik said that China will adopt a selective, case-by-case political approach to debt relief instead of offering blanket assistance for all BRI projects worldwide.
Pakistan's economy is taking a hit due to the COVID-19 crisis. According to the latest country report by the Economist Intelligence Unit, Pakistan's GDP is set to contract by 1.6 percent in the 2019-20 fiscal year. Concerned about worsening economic conditions, the government on Saturday eased coronavirus lockdown restrictions, even as the total number of infections crossed the 30,000 mark with 661 deaths.
COVID-19 economic hit gives China little choice but to help cash-strapped allies
https://asia.nikkei.com/Spotlight/Belt-and-Road/Pakistan-request-opens-door-for-Belt-and-Road-project-debt-relief
Pakistan's economy is taking a hit due to the COVID-19 crisis. According to the latest country report by the Economist Intelligence Unit, Pakistan's GDP is set to contract by 1.6 percent in the 2019-20 fiscal year. Concerned about worsening economic conditions, the government on Saturday eased coronavirus lockdown restrictions, even as the total number of infections crossed the 30,000 mark with 661 deaths.
In response, Pakistan has also requested that G-20 countries provide debt relief, which could potentially result in the deferment of $1.8 billion in obligations for a year, Hafeez Shaik, a government adviser, was quoted as saying after a Ministry of Finance meeting. Pakistan has also secured a loan of $1.386 billion from the International Monetary Fund and another of $305 million from the Asian Development Bank.
In such a context, Krzysztof Iwanek, head of the Asia Research Centre at War Studies University in Warsaw, argues that Beijing agreeing to payment delays would give Pakistan short-term financial breathing room.
But Iwanek cautions against expecting significant debt relief from China. "[Beijing] may cancel some of [the] lesser value [loans] and allow Islamabad to defer some of the payments, at best, " he told Nikkei.
The German Marshall Fund's Small, meanwhile, said that China accepting Pakistan's request would underscore the reality that it can't aggressively push the CPEC projects. "[China] has largely figured out the terms of what a slimmed-down CPEC would look like and the current situation doesn't make it easier to deal with any of the continued obstacles," Small said.
The United States on Wednesday urged China either to wave off or renegotiate what it called “unsustainable and unfair” debt of Pakistan as it once again raised serious questions about the lack of transparency in the multibillion-dollar China-Pakistan Economic Corridor (CPEC).
“At a time of crisis like Covid-19, it is really incumbent on China to take steps to alleviate the burden that this predatory, unsustainable and unfair lending is going to cause to Pakistan,” said Alice Wells, the outgoing US Assistant Secretary of State for South and Central Asia.
“We hope China will join in either waving off debt or renegotiating these loans and creating a fair and transparent deal for Pakistani people,” Ambassador Wells said while addressing a farewell news briefing through a video link attended by journalists from South and Central Asia.
This was not the first time the US and Wells in particular publically questioned the viability of CPEC. Wells in the past also expressed similar views, declaring CPEC detrimental to Pakistan’s economy.
China always dismissed the US claims and instead challenged Washington to match its economic assistance to Pakistan.
Ambassador Wells, who is retiring this week, said the US supports CPEC and other development projects as long as they meet international standards, uphold environmental and labour standards.
“I enumerated my concerns and the United States government’s concerns over CPEC, over the lack of transparency involved in the project, over the unfair rates of profits that are guaranteed to Chinese state organisations to the distortions it caused in the Pakistani economy including by the massive imbalance in the trade Pakistan now has with China,” she argued.
Pakistan has been seeking debt relief from G20 countries to offset the negative fallout of coronavirus on its economy.
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The top US diplomat also spoke about President Trump’s South Asia strategy, which according to Wells, brought fundamental change in approach towards Pakistan.
She said that Trump’s strategy had made it clear that Pakistan had to take decisive action against terrorist and militant groups that supported conflict in Afghanistan.
The suspension of security assistance by President Trump in January 2018 was a demonstration of that resolve to hold Pakistan accountable for the alleged presence of terrorist groups on its soil, she added.
According to Wells, since then Pakistan had taken “constructive steps” to advance Afghan peace process. She said Ambassador Zalmay Khalilzad had developed “solid cooperation” with Pakistan civil and military leadership.
The US senior diplomat also praised Pakistan’s steps to eradicate threat posed by terrorist groups to regional stability.
“Pakistan is also taking initial steps towards curtailing other terrorist groups that threatened the region such as arresting and prosecuting Laskhar-e-Tayaba leader Hafza Saeed and beginning to dismantle terrorist financing structures.
“And as Pakistan’s commitment to the regional peace grown, we see initial growth in our relationship with Pakistan as well particularly in trade,” she further said.
For foreign investors registered with the State Bank of Pakistan, the return on equity (ROE) ‘will be 12pc prospectively’. For local investors, the ROE will be changed to 17pc in rupee terms without dollar indexation. “In recalculating the return, the equity approved by the National Electric and Power Regulatory Authority (Nepra) on commercial operation date in dollar shall be converted into rupee at an exchange rate of Rs145 for prospective calculation”, according to an MoU seen by Dawn.
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A senior government official told Dawn that about half of the 12 IPPs set up under the 2002 power policy and an association representing about two dozen WPPs had already signed memorandums of understanding (MoUs) with a negotiation team led by former federal secretary Babar Yaqoob Fateh Muhammad while others are expected to follow suit within 15 days.
These do not include the IPPs under 1994 policy, China-Pakistan Economic Corridor, public sector plants of generation companies, hydropower and nuclear power projects which claim over 75 per cent of the capacity payments.
Since most of the IPPs remained unutilised for almost nine months last year and are on the last leg of their terms, the total savings would amount to about 5pc of the total energy purchases that last year stood at about Rs775 billion or about Rs35-40bn, the official explained.
The understanding followed principles from government side that power purchase agreements are sacrosanct, the IPPs would not be subjected to media trial and there would be no investigations or arm twisting. However, evidence was put on the table to suggest that on a case to case basis, investments had been exaggerated, equity overstated and machinery over-invoiced and taxes underpaid and hence mutually agreed changes in existing contractual relationship.
Seen this way, China’s internationalization—as laid out in programs such as the Belt and Road Initiative—is not simply a pursuit of geopolitical influence but also, in some tellings, a weapon. Once a country is weighed down by Chinese loans, like a hapless gambler who borrows from the Mafia, it is Beijing’s puppet and in danger of losing a limb.
The prime example of this is the Sri Lankan port of Hambantota. As the story goes, Beijing pushed Sri Lanka into borrowing money from Chinese banks to pay for the project, which had no prospect of commercial success. Onerous terms and feeble revenues eventually pushed Sri Lanka into default, at which point Beijing demanded the port as collateral, forcing the Sri Lankan government to surrender control to a Chinese firm.
The Trump administration pointed to Hambantota to warn of China’s strategic use of debt: In 2018, former Vice President Mike Pence called it “debt-trap diplomacy”—a phrase he used through the last days of the administration—and evidence of China’s military ambitions. Last year, erstwhile Attorney General William Barr raised the case to argue that Beijing is “loading poor countries up with debt, refusing to renegotiate terms, and then taking control of the infrastructure itself.”
As Michael Ondaatje, one of Sri Lanka’s greatest chroniclers, once said, “In Sri Lanka a well-told lie is worth a thousand facts.” And the debt-trap narrative is just that: a lie, and a powerful one.
Our research shows that Chinese banks are willing to restructure the terms of existing loans and have never actually seized an asset from any country, much less the port of Hambantota. A Chinese company’s acquisition of a majority stake in the port was a cautionary tale, but it’s not the one we’ve often heard. With a new administration in Washington, the truth about the widely, perhaps willfully, misunderstood case of Hambantota Port is long overdue.
The city of Hambantota lies at the southern tip of Sri Lanka, a few nautical miles from the busy Indian Ocean shipping lane that accounts for nearly all of the ocean-borne trade between Asia and Europe, and more than 80 percent of ocean-borne global trade. When a Chinese firm snagged the contract to build the city’s port, it was stepping into an ongoing Western competition, though one the United States had largely abandoned.
It was the Canadian International Development Agency—not China—that financed Canada’s leading engineering and construction firm, SNC-Lavalin, to carry out a feasibility study for the port. We obtained more than 1,000 pages of documents detailing this effort through a Freedom of Information Act request. The study, concluded in 2003, confirmed that building the port at Hambantota was feasible, and supporting documents show that the Canadians’ greatest fear was losing the project to European competitors. SNC-Lavalin recommended that it be undertaken through a joint-venture agreement between the Sri Lanka Ports Authority (SLPA) and a “private consortium” on a build-own-operate-transfer basis, a type of project in which a single company receives a contract to undertake all the steps required to get such a port up and running, and then gets to operate it when it is.
The Canadian project failed to move forward, mostly because of the vicissitudes of Sri Lankan politics. But the plan to build a port in Hambantota gained traction during the rule of the Rajapaksas—Mahinda Rajapaksa, who served as president from 2005 through 2015, and his brother Gotabaya, the current president and former minister of defense—who grew up in Hambantota. They promised to bring big ships to the region, a call that gained urgency after the devastating 2004 tsunami pulverized Sri Lanka’s coast and the local economy.
https://www.aiddata.org/blog/aiddatas-new-dataset-of-13-427-chinese-development-projects-worth-843-billion-reveals-major-increase-in-hidden-debt-and-belt-and-road-initiative-implementation-problems
The AidData report, Banking on the Belt and Road, offers a bird’s-eye view of China’s geo-economic strategy before and after the introduction of the BRI in 2013. It details how spending patterns, debt levels, and project implementation problems have changed over time, leveraging insights from a uniquely granular dataset that captures 13,427 projects across 165 countries worth $843 billion. These projects were financed by more than 300 Chinese government institutions and state-owned entities. The new 2.0 Global Chinese Development Finance Dataset covers projects approved between 2000 and 2017 and implemented between 2000 and 2021. It is the most comprehensive dataset of its kind.
“China has quickly established itself as the financier of first resort for many low-income and middle-income countries, but its international lending and grant-giving activities remain shrouded in secrecy,” said Ammar A. Malik, a Senior Research Scientist at AidData and co-author of Banking on the Belt and Road. “Beijing’s reluctance to disclose detailed information about its overseas development finance portfolio has made it difficult for low-income and middle-income countries to objectively weigh the costs and benefits of participating in the BRI. It has also made it challenging for bilateral aid agencies and multilateral development banks to determine how they can compete—or coordinate and collaborate—with China to address issues of global concern.”
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“China will soon face higher levels of competition in the global infrastructure finance market due to the Build Back Better World Initiative and the E.U.’s recently announced Global Gateway Initiative,” said Parks. “As we enter this new era of strategic rivalry, it will be more important than ever that G7, Chinese, and host country policymakers rely on hard evidence rather than opinions or conjecture.”
The narrative wrongfully portrays both Beijing and the developing countries it deals with.
By Deborah Brautigam and Meg Rithmire
https://www.theatlantic.com/international/archive/2021/02/china-debt-trap-diplomacy/617953/
The notion of “debt-trap diplomacy” casts China as a conniving creditor and countries such as Sri Lanka as its credulous victims. On a closer look, however, the situation is far more complex. China’s march outward, like its domestic development, is probing and experimental, a learning process marked by frequent adjustment. After the construction of the port in Hambantota, for example, Chinese firms and banks learned that strongmen fall and that they’d better have strategies for dealing with political risk. They’re now developing these strategies, getting better at discerning business opportunities and withdrawing where they know they can’t win. Still, American leaders and thinkers from both sides of the aisle give speeches about China’s “modern-day colonialism.”
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China, we are told, inveigles poorer countries into taking out loan after loan to build expensive infrastructure that they can’t afford and that will yield few benefits, all with the end goal of Beijing eventually taking control of these assets from its struggling borrowers. As states around the world pile on debt to combat the coronavirus pandemic and bolster flagging economies, fears of such possible seizures have only amplified.
Seen this way, China’s internationalization—as laid out in programs such as the Belt and Road Initiative—is not simply a pursuit of geopolitical influence but also, in some tellings, a weapon. Once a country is weighed down by Chinese loans, like a hapless gambler who borrows from the Mafia, it is Beijing’s puppet and in danger of losing a limb.
The prime example of this is the Sri Lankan port of Hambantota. As the story goes, Beijing pushed Sri Lanka into borrowing money from Chinese banks to pay for the project, which had no prospect of commercial success. Onerous terms and feeble revenues eventually pushed Sri Lanka into default, at which point Beijing demanded the port as collateral, forcing the Sri Lankan government to surrender control to a Chinese firm.
The Trump administration pointed to Hambantota to warn of China’s strategic use of debt: In 2018, former Vice President Mike Pence called it “debt-trap diplomacy”—a phrase he used through the last days of the administration—and evidence of China’s military ambitions. Last year, erstwhile Attorney General William Barr raised the case to argue that Beijing is “loading poor countries up with debt, refusing to renegotiate terms, and then taking control of the infrastructure itself.”
As Michael Ondaatje, one of Sri Lanka’s greatest chroniclers, once said, “In Sri Lanka a well-told lie is worth a thousand facts.” And the debt-trap narrative is just that: a lie, and a powerful one.
Our research shows that Chinese banks are willing to restructure the terms of existing loans and have never actually seized an asset from any country, much less the port of Hambantota. A Chinese company’s acquisition of a majority stake in the port was a cautionary tale, but it’s not the one we’ve often heard. With a new administration in Washington, the truth about the widely, perhaps willfully, misunderstood case of Hambantota Port is long overdue.
The city of Hambantota lies at the southern tip of Sri Lanka, a few nautical miles from the busy Indian Ocean shipping lane that accounts for nearly all of the ocean-borne trade between Asia and Europe, and more than 80 percent of ocean-borne global trade. When a Chinese firm snagged the contract to build the city’s port, it was stepping into an ongoing Western competition, though one the United States had largely abandoned.
By Indrajit Samarajiva
Last month, protesters breached the presidential residence and prime minister’s office, and it was the one thing that felt good. Along with thousands of ordinary Sri Lankans, I got to see inside these colonial-era fortresses for the first time. It was spontaneous, safe and respectful. Couples went on dates there; parents brought their kids. I saw people singing in the president’s house, a mother dancing with her toddler, people swimming in the pool. I walked around a hall lined with plaques bearing the names of British colonizers, which seamlessly became the names of our own presidents.
At the prime minister’s office, someone played the piano and a shirtless man draped in a Sri Lankan flag slept on a couch. Four guys had set up a game of carrom and were flicking the discs around. A child joyfully cartwheeled across the lawn outside, and a community kitchen served rice to anyone that was hungry. It was a beautiful sight in a space where elites had nibbled on canapes before, surrounded by armed guards. It felt hopeful.
But what had briefly felt like true democracy didn’t last. Parliament merely replaced President Rajapaksa with one of his cronies, Ranil Wickremesinghe, who has been prime minister a handful of times but lost his parliamentary seat in 2020. He has turned the military on demonstrators and arrested protesters and trade unionists. It’s all been “constitutional,” eroding faith in the whole liberal democratic system.
Sri Lanka — like so many other countries struggling for solvency — remains a colony with administration outsourced to the International Monetary Fund. We still export cheap labor and resources, and import expensive finished goods — the basic colonial model. The country is still divided and conquered by local elites, while real economic control is held abroad. The I.M.F. has extended loans to Sri Lanka 16 times, always with stringent conditions. They just keep restructuring us for further exploitation by creditors.
And as much as the West blames Chinese predatory lending, only around 10 to 20 percent of Sri Lanka’s foreign debt is owed to China. The majority is owed to U.S. and European financial institutions, or Western allies like Japan. We died in a largely Western debt trap.
Other countries face the same peril. Around 60 percent of low-income nations and 30 percent of middle-income ones are in debt distress or at high risk of it. Pakistan, Bangladesh, Tunisia, Ghana, South Africa, Brazil, Argentina, Sudan — the list of those in trouble is growing rapidly. An estimated 60 percent of the world’s workforce has lower real incomes than before the pandemic, and the rich countries offer little to no help.
But big economies are suffering too. Europe faces energy uncertainty, Americans are struggling to fill their tanks, the United States may already be in recession, its asset bubble threatens to pop, and British families face food worries.
It’s going to get worse: The I.M.F. just warned that the likelihood of a global recession is mounting. As economies collapse, Western loans simply won’t get repaid and poor nations will crash out of the dollar system that props up Western lifestyles. Then, even Americans won’t be able to money-print their way out of trouble. It’s already begun. Sri Lanka has started settling loans in Indian rupees while India is buying Russian oil in rubles. China may buy Saudi oil with yuan.
The Sri Lankan uprising that threw out our leaders is called the Aragalaya. It means “struggle.” It’s going to be a long one, and it’s spreading across the world.