Pakistan Economy : Updates and Discussions

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China refuses to lavish money, CPEC comes to a halt

By Abhinandan Mishra
Published : September 21, 2019, 7:31 pm


New Delhi: The China-Pakistan Economic Corridor (CPEC), which was described by Pakistan as its gateway to economic prosperity, has slowly but surely come to a halt. Dogged resistance from Baloch nationalists, missed deadlines and massive corruption among Pakistani policymakers have led to a situation where China is refusing to meet the commitments it had made of investments in CPEC.

When CPEC was announced on 20 April 2015 by the then Pakistan Prime Minister Nawaz Sharif and Chinese President Xi-Jinping, the total investment that Pakistan, by way of loans, was supposed to get from China, was around $46 billion. However, four years down the line, the Pakistan government has got only $26.5 billion, according to informed sources and authoritative documents. The CPEC encompasses 18 major energy projects and five infrastructure projects, including taking measures to operationalise Gwadar port fully. And now Pakistan will be required to pay $40 billion as loan repayment to China over a period of 20 years, that is by 2038.

How Pakistan will pay this humungous amount, given its current economic condition, is a totally different story.

The major focus of CPEC, when it was brought into existence, was building a network of roads, railways and pipelines that included an 870-km road cutting across Balochistan.

The Sunday Guardian spoke to multiple sources in Balochistan, who said that CPEC projects passing through that region were either lying useless, or their construction had been stopped.

Sample this. Construction for the New Gwadar international airport, touted to be the largest airport of Pakistan, construction for which was scheduled to start in mid-2017 and was expected to be completed by 2020, saw its ground-breaking ceremony only in March this year. It is unlikely to get operationalised, if it does ever, before 2023-2024.

Though the road through Balochistan, to connect other parts of Pakistan to the Gwadar port, has been completed, yet it is not being used because of resistance by the Baloch, who have continued to fight for a separate country while ignoring offers of millions of dollar worth of bribes.

Top Baloch leader Dr Allah Nazar Baloch told The Sunday Guardian, “Though they have installed armed checkpoints every 2 km of this particular road, no movement of cargo takes place. The one time they tried, when 50-60 cargo trucks, escorted by multiple armed vehicles and an army chopper, were on their way to the port, resulted in failure as the trucks were not able to reach their destination without being extensively damaged because of the repeated assaults that the Baloch nationalists carried out on them. Since then, no cargo movement has taken place on this route.”

A resident of Gwadar said: “It is of no use. No one uses that road. The port too is very rarely used. Once in a blue moon it sees ships that bring workers and materials. A Chinese ship had sailed from here in March 2018, nothing much after that.”

In August 2017, the Pakistani ambassador to China, Masoud Khalid, in an interview to a Chinese media group, had said that the port would be operationalised within four years.

The one incident that perhaps sounded the death knell of CPEC’s projects in Balochistan was the attack on Pearl Continental hotel, the reality of which, claim Baloch leaders, Pakistan continues to hide even now.

On 12 May this year, Baloch nationalists carried out a deadly attack on Pearl Continental hotel, built atop hill overlooking the Gwadar port. It was the only five-star hotel in the region and hence was used by top officials working with CPEC, including Chinese and Arab investors. This hotel, locals say, is the best guarded establishment of the region with an armed roadblock at every 1 km on its way.

In a fire-fight that lasted approximately 44-48 hours, three Baloch armed individuals, according to the Pakistan government, killed five people, all Pakistani nationals, before they were neutralised by the Pakistan armed forces, who used fighter helicopters as well.

However, as per Allah Nazar Baloch, at least 80 people, all Chinese and Arabs, but not men belonging to the Pakistan armed forces, were killed in the attack.

“The attackers were heavily armed. Each one of them carried a huge number of hand grenades apart from assault rifles. One grenade can destroy everything under a 12 sq feet radius. These attackers told their friends, till the time they were communicating—before the communicating lines were disconnected by the army—that they had killed a large number of Chinese and Arab nationals who were staying in the hotel. The entire area was cordoned off for days by the army so that the actual number of the dead never came out. I can say with authority that the number of Chinese and Arab nationals who died in the attack was almost 80,” he told The Sunday Guardian.

This one attack, according to observers, has severely dented China’s intention to invest further in CPEC as it raised serious questions on how capable the Pakistan army was to defend itself and its assets in what can easily be called the most militarised zone of their country.

This was not the only attack. Baloch militants have been able to carry out repeated attacks against Chinese assets and local contractors and their equipment and machinery on a daily basis, something that is not allowed to come out in the local media.

“The Pakistani military had convinced China on several occasions that CPEC was a security-proof project. Yet, their convoys, even now, travel under the protection of gunship helicopters. The attack on Pearl Continental made it clear that the Pakistan army cannot ever subjugate Balochistan. This attack played a final role in ending the project,” said a Gwadar-based journalist. According to him, Gwadar was right now filled with army personnel and intelligence agency officials. “It is a ghost town,” he said.

“The money that was meant for infrastructure projects, has been diverted for security purpose. The majority of the projects are running way behind schedule, many have been dumped because of lack of security cover,” he added.

Corruption, too, played a big role in making sure that CPEC was doomed from the start. Now, things have reached such a stage that Pakistani politicians are publicly talking about how corruption has dented the CPEC.

Earlier this year, Pakistan’s Minister of Communications, Murad Saeed had told the media about the large-scale corruption that was taking place while implementing the mega infrastructure projects all across the country.

Earlier in September 2018, Abdul Razak Dawood, Pakistan’s minister for commerce, industry and investment, had said that all CPEC projects could be suspended until a review was completed, while criticising the previous government headed by Nawaz Sharif for granting China “too favourable” terms on many projects.

Even a former spokesman for the provincial government of Balochistan, who spoke to The Sunday Guardian, said that CPEC was a dead project. “Land has been taken for Gwadar airport, but no work has been done on it. A 300 MW power plant was also supposed to come up in Gwadar, the land for which was also purchased, but no work is visible. There is stagnation at Gwadar port. I think the project is almost gone,” he said.

According to him, the general consensus was that large-scale corruption has forced China to pull back from CPEC and Balochistan.

“They even did not invest the amount that they had initially promised. Pakistan is not China where you can be assured of meeting the deadline or be ready to pay for missing the deadline. Corruption and Baloch resistance have killed the project. China is not a fool that it will continue to spend more money in a place where there is no surety that even if all the projects are completed, though delayed, they will be allowed to function at an optimum level by the Baloch. China should thank God if it manages to get anything out of this project,” he added.

China refuses to lavish money, CPEC comes to a halt - The Sunday Guardian Live
 
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Pakistan agrees to settle Soviet-era trade dispute with Russia: report

Islamabad
November 7, 2019

The trade dispute, which goes back to the days of the Soviet Union, involves USD 117 million and many unsuccessful efforts have been made in the past to end the dispute.


Pakistan's Prime Minister Imran Khan

Pakistan has decided to sign a deal with Russia to end a 39-year trade dispute, which Islamabad hopes will allow Moscow to invest over USD 8 billion in the cash-strapped country, according to a media report on Thursday.

The trade dispute, which goes back to the days of the Soviet Union, involves USD 117 million and many unsuccessful efforts have been made in the past to end the dispute.

According to a report in The Express Tribune, Pakistan will return USD 93.5 million to Russia within 90 days of the signing of the agreement and clear pending exporters' claims amounting up to USD 23.8 million as per the settlement agreements reached in 2016-17.

The efforts to sign the deal with Russia were kicked off by the previous Pakistan Muslim League - Nawaz government and the incumbent regime of Prime Minister Imran Khan has decided to execute it, the report said.

The Pakistan government has authorised its ambassador to Russia to sign the deal, it said.

The trade dispute negatively affected the relations between Russia and Pakistan and it is hoped that the settlement would open doors for enhanced bilateral political, economic and diplomatic relations between the two countries.

The report said that Russia has conveyed to Pakistan that it would invest USD 8 billion in Pakistan's energy sector and the Pakistan Steel Mills. But according to Russian law, it cannot invest in countries with which it has disputes.

The deal will enable Russia to invest in different sectors in Pakistan, officials told the newspaper.

According to the history of the case, the then Soviet Union used to buy textile and other materials from Pakistan in the 1980s. For this purpose the USSR opened two bank accounts in the National Bank of Pakistan (NBP), with funds getting deposited in the accounts by the Economic Affairs Division through State Bank of Pakistan.

After the disintegration of the Soviet Union, some exports payments were left unpaid and as the trade dispute got prolonged. Pakistani companies got stay orders in the Sindh High Court, barring the NBP from transferring funds of Russian banks held in its two accounts since 1996.

The Sindh High Court in its decision on October 4, 2019 allowed an application for the passing of a compromise deal as all the parties had reached a settlement agreement outside the court, the report said.

The amount maintained in the two accounts with the NBP is sufficient pay off USD 93.5 million to Russia as well as clear the pending claims of exporters to the tune of USD 23.8 million, the report said.

Pakistan's relations with Russia have moved past the bitter Cold War hostilities in recent years. Islamabad has shown eagerness to build military-to-military level ties with Moscow.

In July, 2019 Gen Oleg Salyukov, the Commander-in-Chief of the Land Forces of Russia visited Pakistan.

In August, 2018 Deputy Defence Minister of Russia Col Gen Alexander Fomin visited Pakistan to participate in the first Russia-Pakistan Joint Military Consultative Committee (JMCC) meeting on security and defense.

Pakistan Army chief Gen Qamar Javed Bajwa visited Russia in April 2018.

Pakistan agrees to settle Soviet-era trade dispute with Russia: report
 

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January inflation surges to 14.6pc, highest in 12 years

ISLAMABAD: The inflation rate has risen to 14.6 per cent in January from 12.6pc of the previous month, scaling the highest level in 12 years, the Pakistan Bureau of Statistics (PBS) reported on Saturday.

Ramsha Jahangir
Inflation, measured by the Consumer Price Index (CPI), edged up 1.97pc over the previous month. Last time, the highest inflation in the country was recorded at 17pc in the year 2007-08.

The data released shows that higher food prices, particularly of wheat and flour, pulses, sugar, gur and edible oil, have been the largest driver of overall inflation in January.

It has also been observed that the prices of essential food items, especially vegetable and fruits, are higher in rural areas than in urban areas. In rural areas, the prices of LPG cylinders used for cooking purpose have also witnessed highest ever increase since 2013.

The pass-through of exchange rate depreciation and higher international commodity prices, in addition to strong underlying demand pressures, started to reflect in higher year-on-year inflation from July 2019.


Food inflation in urban areas rose by 19.5pc in January on a yearly basis and 2.7pc on a monthly basis whereas it increased by 23.8pc and 3.4pc, respectively, in rural areas. It clearly shows that food inflation is very high in rural areas where most of the population lives, which is an unprecedented phenomenon.

In urban areas, the food items which saw an increase in their prices include: pulse moong 19.74pc, pulse gram 18.2pc, chicken 17.53pc, eggs 14.28pc, wheat 12.63pc, besan 12.09pc, fresh vegetables 11.7pc, pulse mash 10.29pc, gur 9.49pc, beans 8.09pc, wheat flour 7.42pc, pulse masoor 7.33pc, condiments and spices 7.15pc, gram whole 6.68pc, sugar 5.07pc, fresh fruits 3.93pc, mustard oil 2.87pc, wheat products 2.64pc, vegetable ghee 2.18pc, rice 1.2pc, fish 1.19pc and dry fruits 1.09pc.

On the flipside, items whose prices declined in urban areas include: onion 18.37pc, tomato 8.36pc and potato 3.69pc.

In rural areas the food items which saw a price hike include: pulse moong 18.7pc, chicken 17.3pc, fresh vegetables 15.39pc, pulse gram 14.21pc, eggs 12.89pc, gur 12.84pc, besan 9.97pc, wheat 9.07pc, pulse masoor 6.77pc, vegetable ghee 6.55pc, cooking oil 6.48pc, pulse mash 6.31pc, wheat flour 6.16pc, mustard oil 5.13pc, condiments and spices 4.85pc, beans 4.54pc, sugar 4.36pc, gram whole 4.22pc, dry fruits 3.54pc, butter 2.49pc, potato 1.96pc, meat 1.82pc, rice 1.77pc, wheat products 1.67pc and milk powder 1.4pc .

With the arrival of crops, especially vegetables, in Punjab, it is predicted that food prices will come down. The prices of tomato, onion and potato and other vegetables will come down in February and March.

Similarly, non-food inflation in urban centres was recorded at 10.2pc year-on-year, while it was 10.5pc in rural areas. The rise in non-food inflation is mainly driven by an increase in oil prices over the past few months and a combined impact of depreciation of the exchange rate. The government passed on this increase to domestic consumers.

The International Monetary Fund has estimated that the country’s inflation may rise as high as 13pc, but the government estimates that it will remain within the range of 11-13pc for the current fiscal year.

The Asian Development Bank in its outlook projected annual inflation in Pakistan at 12pc.

The urban CPI covers 35 cities and 356 consumer items, while the rural CPI tracks 27 rural centres and 244 items. The former grew by 13.4pc year-on-year in January, whereas the latter jumped by 16.3pc.

The core inflation rate in urban areas was 7.9pc in January as against 7.5pc in the previous month, according to the new methodology. The core inflation rate in rural areas was 9pc in January, while it was 8.1pc in the previous month.

The central bank determines the key policy rate — currently at 13.25pc — on the basis of the core inflation rate. The average inflation between July-January was 11.6pc as against 5.9pc over the same period last year.

Average inflation measured by the Sensitive Price Index crawled up to 15.35pc in July-January period from 2.12pc during the same period last year, while the Wholesale Price Index dipped to 13.61pc from 16.27pc.

Published in Dawn, February 2nd, 2020
 
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