Pakistan, a leading showcase for China’s Belt and Road Initiative program of infrastructure development, will slash spending on BRI related projects over the coming year as the government struggles to balance its finances.
With its foreign reserves dwindling, Pakistan signed a staff-level bailout agreement with the International Monetary Fund in May under which it will receive $6 billion in support but will submit to strict fiscal discipline for 39 months.
Despite this constraint, overall spending for the fiscal year beginning July 1 is set to rise 39% under the budget plan unveiled by the government last week.
BRI projects, however, look to take a significant hit. While the government does not provide an overall budget for related programs, a review of planned spending shows about 83 billion Pakistani rupees ($530 million) has been allocated for the coming year. This compares with the 198 billion rupees tallied in the last budget by local media and the 180 billion rupees counted the year before.
“The funding cut should be seen as a reflection of an austerity budget, motivated in part by an impending IMF package that will discourage heavy spending,” said Michael Kugelman, a Pakistan specialist and the deputy director of Asia programs at the Wilson Center, a U.S. government-backed think tank in Washington.
In real terms, the reduction in the value of BRI funding is greater than the headline figures imply as the Pakistani rupee has depreciated 28% against the dollar since last July. The cuts also follow a move in March by officials to divert 24 billion rupees in budgeted spending for this year from BRI projects to other construction works.
The lack of clarity about government spending on the BRI and the China-Pakistan Economic Corridor, its local portion, mean however that some observers have counted the figures differently.
Chinese State News Wire Xinhua, for example, reported last week that Pakistani spending on CPEC “and relevant projects” would rise 1% in the coming year to 200 billion rupees. The report did not detail the calculation behind that figure.
Some projects are facing deeper cuts than others. Ahsan Iqbal, who oversaw CPEC projects as a Minister in the previous Government, said that spending for two key sections of a new Karachi-Lahore highway are to be cut by between 38% and 48%.
Funding for a new international airport at Gwadar, where Chinese companies have built a deep-sea port, has been cut to 555 million rupees from 1.8 billion rupees last year. Spending for a new railway line between Karachi and Peshawar has been cut to 4.5 billion rupees from 5 billion rupees. It is unclear how much the cuts could delay any of the CPEC projects.
It is unclear how much the cuts could delay any of the CPEC projects. The budget cuts come amid a growing recognition by Beijing of the complications involved with Pakistan and other nations incurring heavy debt to finance BRI projects.
“Beijing is certainly recalibrating its involvement in BRI projects and adopting a more circumspect approach,” said Mohan Malik, a professor at the Asia-Pacific Center for Security Studies in Hawaii. He noting pledges by Chinese President Xi Jinping at the Belt and Road Forum in Beijing in April to emphasise sustainability in future projects.
Said Kugelman of the Wilson Center: “Given Pakistan’s growing indebtedness to China, both sides have a strong interest in Pakistan upping its share of CPEC costs. Austerity measures, however, make this a tough sell.”