How is the government confusing all of us on CPEC?
Pakistan is a country that loves technicalities. Irrespective of which walk of life a Pakistani is from, ask them a straightforward question, sufficiently self-explanatory for any other national, the Pakistani will present you with a ‘technical’ answer that both baffles and amazes you. The sheer audacity of how the ‘technicality’ turns night into day will make you gasp in admiration.
This is a country that can defend the right of a disgraced premier to challenge every institution in the name of democracy while overlooking all manner of venality, misuse, and thuggery because of it ‘technically’ wasn’t the reason for his disqualification. It can defend the right to assembly by militant outfits turning a blind eye to their genocidal proclamations, intimidations, and murders because ‘technically’ they are doing what they must in order to forward the cause of someone else’s freedom.
Pakistan must plan for reality. Whether these obligations are ‘technically’ FPI and not Debt, is, in reality, immaterial. The same GDP will have to service them none the less. In Pakistan, that means increased indirect taxation
It can rejoice in the military’s derailment of its own corrupted democratic transition overlooking the fact that the military simply perpetuates the same system because “technically” it was done to rid venality. It can curse its military for ruling for near three decades while absolving politicians from supporting two decades of that rule because ‘technically’ the man at the top was wearing a uniform. Technicalities are what drive justifications in Pakistan’s discourse. Technicalities are the real certitude.
So why have we expended more than two hundred words stating the love of such technicalities while the title alludes to the World Bank, CPEC, and Debt? Let me elaborate. Since the re-branding and re-marketing began in June 2013, Pakistanis were led to believe that the new Prime Minister’s vision, CPEC, had been thought, negotiated and signed as soon as he took the oath.
Technicalities are supposed to be baffling and suitably complex to allow you the opportunity to argue either side of the argument to your heart’s desire. That’s why they are technicalities
This miracle was performed within one day, though it took considerably longer to form a cabinet. Alongside this miraculous feat it was also announced the behemoth amount of money the Chinese government was pouring into infrastructure projects, nominated by them, and power projects, to be nominated by Pakistan, were to be investments.The buzz words that became synonymous with this ‘vision’ were Foreign Direct Investment and ‘game changer’.
Once the initial marketing campaign ran its course, those who started criticising the lopsided proposals started using the words ‘Debt’ and‘re-colonisation’. Over the next few years, while the Chinese implemented their well-structured and meticulously planned projects, the government in Pakistan concentrated on limiting transparency on the entire venture and insisting that Pakistan was not signing up to unsustainable debt amid an austerity and indirect taxation drive that was supposed to limit its indebtedness.
Three years of flip-flopping on the debt question brought Pakistan to a point where everyone in government insisted the Chinese were investing in Pakistan while economists and opposition leaders insisted that Chinese investment was in fact state debt, further burdening an economy that was already reeling from its accumulated non-performing debt.
So, “technically’, the repayments and obligations might end-up burdening the state but the actual debt belongs to the private entity. It’s NOT Government Debt, “technically” its Foreign Portfolio Investment
Pakistan’s government never actually elaborated on why they believed it was Foreign Direct investment and the opposition never explained why they believed it was State Debt, while the State Bank showed it as neither. The lack of transparency prevailed for three years until Pakistan found itself facing the World Bank. Now a classification was required and the World Bank, based on what evidence they had been provided decided to agree with the view of most economists. Panic ensued as a Finance Minister, embroiled in perhaps the worst case of graft and money laundering, had to justify a three-year mantra of Foreign Direct Investment.
Saying it Differently
When it finally came, the explanation was a so masterful that it would make every Pakistani con-artist proud in its sheer convoluted brilliance. Here is as succinct a summary as can be presented given the Pakistan government’s love affair with non-transparency.
The companies taking on the liability are backed by the state. The state has issued sovereign guarantees to back these liabilities. The state is liable to step in and make ‘extra-ordinary’ payments in order to cover these liabilities. The state will whenever needed, pay these liabilities using tax-payers’ money. The state will reconcile these payments from the respective budgets.
The state is liable to step in and make ‘extra-ordinary’ payments in order to cover these liabilities. The state will whenever needed, pay these liabilities using tax-payers’ money. The state will reconcile these payments from the respective budgets
In short, the state, Pakistan, will end up paying these liabilities. So far so pretty easy. Sounds like debt, behaves like a debt and will be re-payed like a debt, but, and this is important but so let’s say it again, but, the contracting entity is not the state, it is a private entity. Yes, it’s true that the state happens to have formed, structured and invested in every such private entity, but it is a private entity none the less.
Let’s break this down for you, much like the government would have done for the World Bank. So it’s not the state but a private entity that this debt belongs to. They are the ones who sold their bonds and that private entity has secured their value by having them backed by a sovereign guarantee that just so happens to be from the state. So, “technically’, the repayments and obligations might end-up burdening the state but the actual debt belongs to the private entity. It’s NOT Government Debt, “technically” its Foreign Portfolio Investment.
So, there you have it. It may have taken three years but you have your answer. Is CPEC funded by Debt or FDI? “Technically”, neither. Yes, the loans from China for CPEC projects are not State Debt and neither are they Foreign Direct Investment (FDI), but “technically’ they are Foreign Portfolio Investments (FPI). So Pakistan’s external debt financing needs will not be the back-breaking 9% of GDP (US$ 31 Billion) but ‘technically’ will be the slightly less back-breaking 6% of GDP US$ 17 Billion).
Bravo; we are suitably amazed. If you were unable to follow this or find yourself scratching your head and revisiting all you were taught in your economics and governance tutorials, don’t worry. Technicalities are supposed to be baffling and suitably complex to allow you the opportunity to argue either side of the argument to your heart’s desire. That’s why they are technicalities.
Alongside this miraculous feat it was also announced the behemoth amount of money the Chinese government was pouring into infrastructure projects, nominated by them, and power projects, to be nominated by Pakistan, were to be investments
That said, the thing about ‘technicalities’ is that they are great at ensuring you not lose an argument, they help avoid straightforward answers, obscure plain phenomenon and allow the illusion that night might just be a day. However, at the end of it all, once all the arguments are made, answers are avoided, phenomena obscured and illusions abated, that is, when the dust settles, technicalities do not make reality vanish; the night will still be there, even if ‘technically’ you’ve argued its day.
Pakistan must plan for reality. Whether these obligations are ‘technically’ FPI and not Debt, is, in reality, immaterial. The same GDP will have to service them none the less. In Pakistan, that means increased indirect taxation. Let the fleecing of the tax-payers begin. So, let us propagandize based on technicalities, but let us plan for reality.
(The writer is a former management consultant focusing on the Energy Industry and writes on Energy Security and the Politics of Energy Resources. He is conducting research related to the role of Central Asia’s energy resources in China’s Energy Security at the University of Westminster, UK. The views expressed in this article are the author’s own and do not necessarily reflect Global Village Space’s editorial policy.)