Pakistan’s Prime Minister Imran Khan is due to speak at a high profile China-Pakistan business forum on Tuesday armed with one core message: His country remains open to Chinese Investment.
His two-day visit to Beijing comes amid recent uncertainty over the future of projects under China’s planned $62 billion investment. These were promised as part of the China-Pakistan Economic Corridor, or CPEC, Chinese President Xi Jinping’s signature project of the Belt and Road initiative.
CPEC was intended to build energy infrastructure projects and special economic zones for Chinese factories, which would make export goods at their Pakistani base. A large part of the planned investment would also go toward establishing rail lines and high-speed highways to link western China with Pakistan’s newest deep-water port at Gwadar on the Arabian Sea.
But concerns have mounted over Pakistan’s commitment to CPEC in the latest financial year that began in July. Senior government officials told the Nikkei Asian Review that Pakistan has reduced its expected funding for CPEC projects during the current financial year, largely due to spending cuts tied to an International Monetary Fund loan package.
The IMF approved a $6 billion loan to Pakistan in July to help the country avert a balance of payments crisis. The loan requires Pakistan to implement a number painful measures, such as raising electricity and gas taxes, to reduce the government deficit.
Ahead of Khan’s arrival in Beijing, a Pakistani minister reiterated on Sunday his country’s commitment to the planned CPEC investments. “CPEC projects are on track. The impression that there is a slowdown is incorrect,” said Khusro Bakhtiar, Minister for Planning and who also oversees CPEC Projects.
However, Senior Officials who spoke to Nikkei disagreed. “Compared to the enthusiasm we saw even a year ago, there is definitely a pullback, a slowdown,” said an economist who advises the Government and spoke to Nikkei on condition of anonymity.
The source noted that the “second stage of CPEC,” which involves creation of special economic zones with incentives for investors such as tax breaks, “appears to be on the slow path. I understand the Chinese are not happy about this.”
Aqeel Karim Dhedi, Chairman of Karachi based AKD Securities, a financial services company, told Nikkei that it was important to step up the pace of the “second stage.”
“Pakistan must now get its act together and make the special economic zones operational. It is here that a policy framework has to be established to attract Chinese investors,” Dhedi said. He added that “once Chinese investors come and set up their factories, there will be jobs for Pakistanis and there will be exports from these factories that will strengthen Pakistan’s economy.”
In a related development, Zubair Gilani, Chairman of the Board of Investment, a government body responsible for facilitating new investments, admitted in September that the government was revisiting laws meant to govern special economic zones.
Gilani’s remarks made during a special committee hearing in the Senate raised questions over gaps in key areas meant to govern CPEC.
Hasan Askari Rizvi, a Pakistani commentator on national and security affairs, told Nikkei in an interview that successive governments have failed to clearly articulate CPEC initiatives. “Across Pakistan, there are many people who are unclear over exactly what is involved in CPEC, which after all, is the biggest project of its kind ever undertaken in Pakistan,” Rizvi said. This lack of information then gives rise to uncertainty.”
AKD Securities’ Dhedi went a step further, urging greater government effort. “I think there needs to be much more focus. Maybe there should be a dedicated secretariat, and even a dedicated minister, for CPEC,” he said.
However, the unnamed government economic adviser told Nikkei that Pakistan will be unable to meet financial commitments to CPEC until at least 2022, when the IMF loan program is due to conclude.
“Pakistan will not be able to stretch the limits of investments under CPEC too far as long as we are complying with limits under the IMF loan program,” he said.
As Khan is set to arrive in Beijing ahead of Tuesday’s speech, observers said that his key challenge will be to convince his Chinese hosts that reports of Pakistan’s slowdown regarding CPEC projects is only temporary, but will remain until the country overcomes its fiscal difficulties.