Notwithstanding the booming stock exchange, the article highlights the falling competitiveness of Pakistan's economy reflected in the declining exports and posits that the cartel-ridden economy needs major reforms to be able to service the debts being incurred at commercial rates for executing CPEC projects along with the projected IPP payments in foreign exchange associated with the power plants being installed under the CPEC. Furthermore, it notes the high cost of combating terrorism as a growing burden on the economy. This is exactly what the IMF has earlier told Pakistan that without major reforms and improvement in Pakistan's investment environment and global competitiveness the country would be caught in a massive debt trap. Based on current standards of governance and lack of any reform initiatives this is the most likely outcome. Let's call it the 'debt trap' outcome.
In an earlier article, "CPEC - boondoggle or game changer?" carried byBusiness Recorder on September 8, 2016, the author had written that, "Free trade agreements, bilateral investment treaties, visa free travel and tourism protocols, human skill development agreements, the entire frameworks for harmonising and integrating the economies of Pakistan with China will have to be effectively developed and implanted if the CPEC has to be game changer. It is a godsend and cannot be wasted. The effort will transcend any government or political party. Hence the need to institutionalise the effort. All of this would require superb planning abilities and implementation institutions.
The Chinese economy can be the proverbial treasure trove for us comprising a huge and increasingly rich market of 1.5 billion people, the world's largest banking and financing pool that we can tap, knowledge and skill development ocean at our disposal, access to modern and appropriate technology for expansion, modernisation and transforming the wealth creating Manufacturing, Mining and Agriculture sectors of Pakistan; particularly, we can use the Chinese experience in Increasing productivity and competitiveness through technology induction and cost reduction in Agriculture, Engineering, Electronics, Consumer Goods , Value-Added Textile, etc.
If we can achieve all this then clearly CPEC will be a game changer for Pakistan. At the current moment such an outcome is highly unlikely as the government has demonstrated no inclination to take on such a massive strategic undertaking. Let's call this the 'game changer' outcome.
There is third possible outcome that can be termed the "new world order outcome". The post-9/11 world of American war on terror has unleashed destruction and uncertainty. It has sapped American stamina and drained American wealth and willingness to lead the world as a sole superpower. Widespread destruction in the Middle East, the influx of refugees into Europe, the Brexit vote in Britain and the rise of isolationism and nationalism in the western world bodes greater uncertainty for the continuity of the world order established after the collapse of the Berlin wall.
The election of Donald Trump as President of the United States and "America first" policies starts the beginning of American disengagement from global interventions like Afghanistan and Iraq and a greater focus on inward looking economic and trade policies and bilateral political relationships. His threat to build a wall to keep Mexico out, his cancellation of the Trans-Pacific Partnership free trade arrangement, his encouragement of further defections from the European Union are a manifestation of this isolationist approach. His criticism of Nato as an outdated organisation signals the end of a costly confrontationist coalition approach with Putin's Russia.
He sees Chinese economic policies as the main cause of American economic weakness and has threatened high tariffs on Chinese imports. Furthermore, he is aggressively threatening abandonment of 'one China' policy and confronting China in the South China Sea. While China's exports to the United States constitute only four percent of Chinese GDP and China can easily sustain any moves to restrict Chinese imports into America, the political and military American pressure in the East and South China Seas is propelling China to pursue an expansion of relationships in the west with Africa, the Middle East, Pakistan, Central Asia, Russia and Europe through its enormous OBOR and CPEC initiatives.
The mega inward looking adjustments taking place in the American foreign and domestic policies open up a great opportunity for China to step in the vacuum by forging a leadership role in free trade and open economic policies and global institutions. In this respect Pakistan is destined to play a central role in our neighbourhood. Pakistan is the zipper that connects our region. To the north is the $14 trillion Chinese economy and the $2 trillion Russian economy, ECO comprising Iran, Turkey and Central Asian countries have a $2 trillion economy to our west, the $2 trillion economy of the GCC in our south and $2 trillion dollar Indian economy to our east. Thus, CPEC potentially connects a region that has a combined GDP of over $20 trillion and could eventually become the biggest trading bloc in the world. If it becomes a reality, it would be the biggest economic dividend after peace returns to our region and it can be the next engine of growth for the world. Let's call this the 'New World Order' outcome.
From the three possible outcomes: 1) the debt trap, 2) the game changer and 3) the new world order, the first outcome is the default outcome. If we continue on a business as usual path we will certainly end up in a debt trap. To get the more desirable outcome 2 or 3, Pakistan will have to take a strategic approach to implementing CPEC as a 'game changer' or a 'new world order' Initiative. This will require a herculean effort to revamp our governance structures, processes and incentive systems to achieve national goals. We would have to pursue CPEC through dedicated special purpose authorities that can strategize, plan, implement, monitor and achieve the desired outcomes within budget and on time. This would require institutions that mange the hardware part of CPEC along with institutions that work out the software part comprising the bilateral and regional treaties and protocols that would facilitate CPEC becoming the backbone of regional, trade and investment. We would have to market CPEC as a global economic corridor and lay the foundations for regional connectivity by driving the processes needed for regional economic integration through hammering out free trade regional agreements within willing SCO, ECO, GCC and SAARC countries. It is time to develop the blue print of this grand economic alliance and Pakistan must take the lead in this. Furthermore, it notes the high cost of combating terrorism as a growing burden on the economy.
(The writer is a former Finance Minister)
Copyright Business Recorder, 2017