Pakistan slows down CPEC to keep US happy

New Delhi: Islamabad has slowed down on the China-Pakistan Economic Corridor (CPEC) – a crown jewel in the Belt and Road Initiative (BRI) – amid dire financial crisis and being stuck between respective priorities of Washington and Beijing.

ET has learnt that many Phase I projects of CPEC, including expansion to the Gwadar port, power plants and road construction, are running behind schedule. The deadline for these projects was set for 2018. There has been limited progress in CPEC Phase II projects like setting up of special economic zones and industrial estates, which are to be completed by 2020.

While Chinese investments in CPEC have fuelled Pakistan’s current account deficit and external debt, the US wants it to go slow on CPEC as a condition to secure financial support, ET has learnt.

Pakistan, according to sources, has decided to delay the projects as Islamabad believes it needs Washington’s support to obtain loans from financial institutions in the West. Prime Minister Imran Khan, in a balancing act, will visit Beijing on October 7-8 to allay China’s growing apprehensions on the project.

CPEC, launched in 2014, aims to build links between China’s Xinjiang Autonomous Region and Pakistan’s Gwadar port. The total cost of the project is estimated at $60 billion.

Beijing’s funding in CPEC has led to massive imports of Chinese equipment and materials, increasing Pakistan’s current account deficit and external debt. According to an IMF report published in July, the country’s total public external liabilities stood at $85.4 billion in March and it owes China one-fourth of this. The State Bank of Pakistan puts the total external liabilities at $106 billion.

The import surge and debt financing have reduced Pakistan’s foreign exchange reserves to a record low since last year. According to the State Bank of Pakistan, the country borrowed $16 billion from abroad in 2018-19 to maintain foreign currency reserves. Around 42% of this, or $6.7 billion, came from China. The IMF approved a $6-billion bailout to Pakistan in July.

“The huge debt pile is forcing a slowdown in new projects. One example is the $8.5-billion Mainline-1, a railway modernisation project that was part of CPEC Phase-1. According to sources in the Planning Commission of Pakistan, the bureaucracy is reluctant to proceed because of increased scrutiny from the National Accountability Bureau, as well as IMF restrictions on Pakistan taking on more debt,” according to a report published by leading Japanese newspaper Nikkei.

“They are getting stories published that criticise CPEC. No newspaper would have dared publishing anything critical of CPEC two years ago,” Nikkei quoted Ayesha Siddiqa, a political commentator and research associate at London University’s School of Oriental and African Studies, as saying. The military has long been seen as the government’s equal in policymaking. “The green signal (for criticism of CPEC) is because the military wants to push back.”

Scepticism over CPEC echoes even in the Pakistani business community because of their lack of involvement. “Although Pakistan’s energy bottlenecks have been removed (by CPEC power projects), in the long term, China has more benefit as compared to Pakistan,” Shahbaz Rana, a financial journalist in Islamabad, told Nikkei.

Incidents of attack on Chinese workers in Pakistan have also cast a shadow on CPEC.

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