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CPEC to help addressing Pakistan’s long term economic constraints: Moody’s

Source: Business Recorder

Author: Shoaib Ur Rehman

Date: 14 December 2018.

ISLAMABAD: In its annual credit report released on Thursday, Moody’s has said that infrastructure and power projects under China Pakistan Economic Corridor (CPEC) will address Pakistan’s long-term economic constraints an strengthen its growth potential.

“Pakistan’s longer-term economic prospects remain robust, in part because of improvements in power supply, infrastructure and national security that have raised the country’s growth prospects and hence business confidence,” said the report Moody’s-a credit rating agency.

It said institutional reforms planned by the new government, if effectively implemented, would also bolster institutional strength, which has increased in recent years with greater central bank autonomy and monetary policy effectiveness.

“However, the reforms will be challenging for any government to navigate because of the country’s large bureaucracy and complex federal-provincial politics and administrative arrangements,” it added.

Neverthless, Moody’s said in short time, it expects the country’s real GDP growth to slow down to 4.3-4.7 percent in fiscal 2019 and 2020, from 5.8 percent in fiscal 2018, in part due to policy measures taken to address the external imbalance.

It said that the credit profile of Pakistan (B3 negative) reflects the country’s high external vulnerability, weak debt affordability, and very low global competitiveness.

“Significant external pressures driven by wider current-account deficits have reduced foreign-currency reserves, which are unlikely to be replenished in the near term unless capital inflows increase substantially,” the report stated.

“While Pakistan’s public external debt repayments are modest, low reserve adequacy threatens the ability of the government to finance the balance of payments deficit and roll over external debt at affordable costs.”

Moody’s said its assessment of Pakistan’s susceptibility to event risk is driven by external vulnerability risk. Current-account deficits will remain wider relative to 2013-16 levels, with near-term prospects for a marked and sustained reversal unlikely unless goods imports contract sharply, it pointed out.

“Absent significant capital inflows, the coverage of foreign-exchange reserves for goods and services imports will remain below two months, below the minimum adequacy level of three months recommended by the International Monetary Fund,” the report stated.

The government’s narrow revenue base restricts fiscal flexibility and weighs on debt affordability, while its debt burden has increased in recent years, it observed.

“At around 72 percent of GDP as of the end of fiscal 2018, the government’s debt stock is higher than the 58% median for B-rated sovereigns, and Moody’s expects the burden to rise further and peak at around 76pc of GDP in fiscal 2020 — in part because of currency depreciation — before gradually declining as the twin deficits gradually narrow.

The moderate but rising level of external government debt also exposes the country’s finances to sharp currency depreciation.

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Belt and Road Initiative: The String of Economic Pearls

Source: Pakistan Observer

Writer: Athar Rashid

According to the estimates of some economists, by 2050, the contribution of Asia in the global GDP will be more than 50%. So, this is an opportunity for Pakistan being in Asia (South East Asia) to benefit from it in the next two decades. Pakistan is a significant partner in the Chinese grand Belt & Road initiative (BRI) also known as One Belt, One Road (OBOR) with CPEC as the flagship project of this massive initiative. CPEC is a framework of regional connectivity which consists of a series of bilateral agreements on multiple projects.
CPEC is an umbrella term used for various projects that have the potential to feed into the larger BRI structure. CPEC is a great economic opportunity for Pakistan to capitalize. As a flagship project of BRI, CPEC churns out experience, opportunities, and expertise for not only Chinese and Pakistani people but also for the other BRI partner countries. CPEC experience can benefit all stakeholders who want to avail the fruits of BRI. Chinese Belt & Road Initiative (BRI) spans around sixty-eight countries over multiple continents and covers about seventy percent of the world’s population in its grand design.
CPEC is a significant part within that large network of BRI. So, in the larger scheme of BRI, Pakistan is one of Sixty eight countries, China is working with to create the potential for sustaining what President Xi Jinping refers to as the “Chinese Dream.” BRI is a framework under which all participating countries enter the fold to help create a community that shares its destiny with China’s. The “Chinese Dream,” referred by President Xi entails sustained growth for China through trade. Therefore, the BRI framework is to achieve “Chinese Dream” through creating a community of countries linking their economic destiny to that of China. Chinese progress and development would mean mutual growth of all stakeholders.
Through Chinese ambitious BRI, Beijing is struggling to build up partners who are willing to align their future with its own. The people’s Republic of China is hoping to create a community where everyone wins through market access, trade relationships and adopting Chinese cultural as well as business norms.As BRI enters its fifth year of implementation it is believed to have some of the largest infrastructure and investment projects in history.Opponents of the BRI claim that the vast global network of new road, rail and pipeline projects will benefit primarily China. Securing sea lanes, ports and refueling stations will help China’s exporters reach overseas markets and give China uninterrupted access to energy imports.
Establishing overland connections to the Indian Ocean will open new trade routes and make Chinese military and commercial vessels less vulnerable to strategic choke points such as the straits of Malacca and Hormuz. On the other hand Chinese President Xi in his keynote address at the 2017 Belt and Road Forum for International Cooperation, specified that the central objective of BRI is to build “land, maritime, air and cyberspace connectivity” and create “networks of highways, railways,and sea ports.”
Numerous studies on the BRI provide evidence that many Chinese development projects accelerate economic growth in partner countries. Nonetheless, it is uncertain who benefits the most from such projects. China committed $50 billion to be invested in Pakistan under the umbrella of CPEC, of which $35 billion will be invested in energy projects and $15 billion in infrastructure, Gwadar development, industrial zones, and mass transit schemes. In the next five years, it is expected that it will be more than $55 billion. This project primarily creates a huge amount of foreign direct investment for Pakistan, at the same time, it will also create greater trade opportunities to China by giving access to a new market for its trading goods.
By building connectivity infrastructure that helps local residents and businesses reach more distant markets, these investments could spread economic activity to rural, remote and disadvantaged areas of the countries along the BRI route. The Belt and Road Initiative (BRI) is based on the win-win philosophy of Confucius. With the successful execution of many CPEC energy and infrastructural projects, both Pakistan and China are going to benefit. China will have all that it needs at the moment to make its presence felt in every corner of the world; more seaports and direct routes to connect with different parts of the world, cutting down the shipping costs etc. Pakistan will see phenomenal growth in its infrastructure, energy and telecommunication sectors.
Pakistan is also doing concentrated efforts to integrate CPEC to its greater network of society. The Planning Commission of Pakistan is trying to improve the academic circle in the country by aligning the vision of Higher Education Commission of Pakistan (HEC) to produce faculty members abreast with the knowledge and expertise of the BRI/CPEC Initiative. This capacity building will certainly help in the human development in shape of skilled students and professionals to serve the long term project of CPEC in a befitting manner.
Chinese investment in BRI countries is around $50 billion and is growing with the passage of time. There are around fifty six economic zones planned in twenty countries, out of which nine are in Pakistan. In the next five years, China will add twenty five hundred, short term research visits for foreign scientists, and train five thousand and four hundred engineers. Most significantly there will be the relocation of twenty five million jobs worth of industry for the people of countries along the BRI. BRI is a great chance and opportunity for countries like Pakistan.
There are many other competitors alongside Pakistan to benefit from the enormous opportunities offered by the grand BRI initiative like Laos, Cambodia, Vietnam, Indonesia, and Malaysia who are looking forward to receiving their share of industrial relocation, jobs, and other economic opportunities. Pakistan needs to work hard in a planned manner to obtain maximum benefit out of this tough competitive opportunity. The Policy makers and shakers in Islamabad should use BRI as an opportunity for global connectivity and trade. Through CPEC and BRI at large, Pakistan can get market access to all the BRI partnering countries which will be a great opportunity for the investors and exporters. The land and maritime routes can effectively be used by Pakistani entrepreneurs and companies to export their products and services to the countries along the BRI route. In order to facilitate that Pakistan needs to renegotiate the visa facility for Pakistani tourists and businessmen with Chinese authorities.
Chinese tourists and businessmen get on arrival visa in Pakistan, the same facility should be extended to the Pakistanis to make the mutual partnership even stronger. Moreover, exporters from Pakistan face a tough time in China because their competitors enjoy zero-rated tax thus leaving Pakistani goods uncompetitive. Pakistan and China should work together for a better free trade agreement (FTA) in order to further strengthen their bonds.

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CPEC may invite hybrid warfare against Pakistan

Source: Asia Times
Author: ATTA RASOOL MALIK 
Date: 5th December,2018.

 

Wars are expensive in terms of blood and treasure. Through the ages, this fundamental truth has driven military strategists to search for a quick and inexpensive path to victory in battle. The ultimate aim of any contesting nation is to force an unwilling enemy government to accept peace on its terms. In democratic countries, the actions of that hostile government are generally based on the will of the people, so no victory can be complete until that “will” is reshaped or moulded.

Liddell Hart, a British military theorist, argued that a man killed is merely one man less, whereas a man unnerved is a highly infectious carrier of fear, capable of spreading an epidemic of panic. Hart argued that the resulting psychological pressure on the government of a country may neutralize all the resources at its command – so that the sword drops from a paralyzed hand. Therefore, a successful strategist thinks in terms of paralysis, not killing.

The mechanism for inducing or coercing a quick change in the government’s position can occur in at least three ways: first, key governmental leaders are killed and replaced by a more sympathetic group; second, the government is overthrown, either by a popular revolt or from a faction within; or, third, the country’s leaders are persuaded  to change their minds.

Every country enjoys at least four instruments of national power or influence. They are: political, economic, military, and informational. In the modern age, the preferred method is to selectively attack or threaten targets that most directly support the enemy‘s will to continue with its current behavior.

Hybrid warfare, a relatively new concept, is a multiple-prong effort aimed at paralyzing the enemy’s leadership through military and non-military clandestine activities, economic subversion and propaganda dissemination. These techniques have been around for ages, but now they incorporate modern-day technologies and are synergized in a scientific manner.

Confusion and disorder follow when weaponized information aggravates the perception of insecurity in the populace as political, social, and cultural identities are pitted against one another.

A hybrid war takes place on three distinct battlefields: the conventional kind, the indigenous population of the conflict zone, and the international community.

Sometimes all it takes is a small and dedicated group of provocateurs to spark clashes with the authorities, along with misleading reports that the security forces are attacking “hard-pressed peaceful protesters.”

The whole point of engineering a completely false narrative of “democratic freedom fighters” resisting a “tyrannical, incompetent and corrupt” regime is that it serves the dual purposes of encouraging more citizens to join in the growing riot and to generate support from abroad. Therefore, hybrid war could mean a synergized campaign of disinformation, terrorism, cyber-attacks on digitally dependent communication networks, criminal activities, proxy sponsorship,, rebellion, insurgency, or anything like that.

Pakistan through the China-Pakistan Economic Corridor (CPEC) guarantees China’s strategic freedom and flexibility in the face of the United States’ naval threats and nullifies all the trouble that it is causing along its southern maritime borderlands. Therefore, the US has a grand interest in disrupting, controlling, or influencing the Silk Road and CPEC.

Pakistan requires the rapid development of a communication network to facilitate cohesion and economic prosperity. However, the country is rife with historical, ethnic, religious, socio-economic, and geographic differences, which could be manipulated by the US and its arch-rival India to engineer violence and set a hybrid war scenario in motion. Many informed people in Pakistan are of the view that Pakistan is under hybrid attack by hostile forces.

In today’s world, apart from traditional media, popular social media platforms such as Facebook, WhatsApp, and YouTube are the primary means of disinformation and propaganda. On these media platforms, various activities related to hybrid warfare are challenging to detect and defeat.

It is most likely that the authorities will always be one step behind the hybrid war agents unless the target government outrightly bans these services. The permanent closure of such services is not a wise option as it can shatter the credibility of the democratic government. Imposing restrictions is best employed for short periods during critical times, such as a few weeks before general elections and similarly important events.

It is also true that information, fake or otherwise, homegrown or imported, will have no impact unless it is accepted as fact by the masses. Therefore, the timely provision of information and critical thinking are the antidote to “fake news and hostile propaganda.” The government should work to enhance online digital platforms that are‘efficient and credible, to ensure the timely provision of information for consumption by the masses and interest groups.

All Pakistani institutions must work together to ensure that the top leadership,  both civil and military, remains credible. It will help us beat back hybrid assaults against CPEC and the state of Pakistan.

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CPEC to help PR improve performance: PM

Prime Minister Nasir-ul-Mulk Tuesday said that with CPEC, there is a huge potential and scope for Pakistan Railways to further improve its performance and increase its share both in passenger as well as freight transportation sector by offer quality services to its customers.

During a briefing about the performance of Pakistan Railway, the prime minister directed that a comprehensive plan would be worked out to overcome the existing challenges for the consideration of the incoming elected government.

The briefing was attended by Minister for Railways Roshan Khursheed Bharucha, Secretary to the PM Suhail Aamir, Secretary Railways Muhammad Javed Anwar and senior officers of Ministry of Railways. The prime minister was informed that as a result of right mix in service the passenger share in Railways has increased from 13percent in 2013 to 31 percent in 2017.

Pakistan Railways recorded a revenue of Rs50 billion in 2017-18 as compared to revenue of Rs15.5 billion in 2011-12.

The prime minister was briefed about organizational structure, rail network, past performance and the future development strategy under National Vision 2025 in the Railways sector.

The prime minister was also briefed about the new business plan and various initiatives taken, both in freight as well as passenger transportation sector, for the revival of Railways and increasing its revenues. The prime minister was also briefed about the progress made in various rail network extension projects under the CPEC.  It was informed that Main Line-1 (ML-1) project from Karachi to Havelian was being upgraded as Early Harvest Project under the CPEC.

It was informed that feasibility study for upgradation of ML-2 (Kotri-Attock) project has also been completed. Similarly, feasibility studies were in progress on extension of ML-2 (Gwadar-Basima-Jacobabad and Basima-Quetta) and extension of ML-3 (Quetta-Bostan-Zhob-DI Khan-Kotlajam) projects.

The prime minister was also apprised about the challenges faced by the organisation including the issue of pension liabilities that contributed to 34 percent of the total expenditure of the organisation.

The prime minister appreciated the performance of Pakistan Railways especially various initiatives taken under the strategic business plan.

SOURCE:https://nation.com.pk/20-Jun-2018/cpec-to-help-pr-improve-performance-pm

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CPEC: the governance challenges ahead — II

Pakistan faces both internal and external security threats. The monster of modern terrorism, however, is a post-9/11 phenomenon. When General-cum-President Pervez Musharraf supported the US-led War on Terror (WoT) against the Taliban, the latter, in reaction, started targeting the Pakistani society and state. Resultantly, more than thirty thousand civilians and law enforcement officials have lost their lives in multiple acts of terrorism since 2003. Nevertheless, the overall number of causalities have dropped since 2014 owing to some legislative and executive measures taken by the government, but suicide bombers are still a real threat. Finding opportunity, any terrorist organization can strike. The country’s security apparatuses are the most tempting targets, while minorities are the most vulnerable.

Most of the people who died in terror attacks were ordinary Pakistani citizens, both Muslims and non-Muslims. But foreigners have also been targeted. For example, an American national was kidnapped and later killed in Karachi some years ago. Iranians have also been targeted.

Similarly, the Islamic State (IS) abducted, as per media reports, two Chinese nationals who were Christian missionaries, near Quetta in 2017. The couple was eventually killed. This seemed like an attempt on the part of the terrorists to malign China-Pakistan relations, in general, and the China-Pakistan Economic Corridor (CPEC) project, in particular. Moreover, another Chinese national was also killed in Karachi, reportedly by extortionists. The deceased Chinese citizen, according to Pakistani officials, was working for a non-CPEC firm called Cosco Shipping Lines Pak (Pvt) Ltd, which has been doing business in Pakistan since the early 1990s. If analysed objectively, in both cases, the Chinese nationals were residing or working in Pakistan in their private capacity. Furthermore, they were not related to CPEC in any capacity. Noticeably, the missionary couple and the private-firm employee were provided due security by the government. However, in both incidents, the Chinese citizens seemed to have violated security protocols, which cost them their lives.

The overall number of terror-related casualties has dropped since 2014 owing to some legislative and executive measures taken by the government, but suicide bombers are still a real threat. Finding opportunity, any terrorist organisation can strike

Recently there have also been reports of some Chinese citizens involved in financial crimes such as ATM skimming. Such cases remain under investigation. In addition, in April 2018, a number of Chinese workers were filmed assaulting some personnel of the Punjab police in the Noor Pur camp (Khanewal, Punjab). Video footage of this shameful incident went viral on social media. At one point during the scuffle, the country project manager of the concerned company stood arrogantly on the bonnet of the police van with the Pakistani flag visible beside his shoes — this was not the first such incident.

Here, it is pertinent to mention that on December 8, 2017, the Chinese embassy in Islamabad issued a press release that read “the Chinese embassy has received some information that the security of the Chinese institutions and personnel in Pakistan might be threatened.  This Embassy would make it clear that Pakistan is a friendly country to China. We appreciate that Pakistan has attached much importance to the security of the Chinese institutions and personnel”. The preceding is a reflection of China’s growing security concerns vis-à-vis its CPEC related citizens. Even, the number of non-CPEC related Chinese nationals — working, for example, as journalists — have crossed fifteen thousands. Physical security of the Chinese residing and working in Pakistan has, therefore, emerged as a legitimate concern, which the Pakistani authorities need to take into policy consideration.

However, despite the mentioned cases of Chinese citizens being killed by terrorists, the fact of the matter is that CPEC has, thus far, not been targeted by a major terrorist attack on its infrastructure, machinery and work force. However, this should not discourage or devalue the significance of security enhancement on the part of Pakistani authorities. Rather, impending security threats ought to be responded to diligently. This will be easier said than done because it raises questions on the legal, institutional and administrative capacity of the government.

For example, is it the prerogative of the local, provincial, regional or federal government to provide material and physical security to, for example, transportation infrastructure (or to the proposed Special Economic Zones) and the Chinese work force and machinery involved at different stages of construction? If it is a combined arrangement on the part of the provincial and federal government, who will be responsible for implementing the security measures? Which government and at what level, will bear the financial and logistical cost of security? Moreover, if the provision of security is the responsibility of the provincial government, will the province be able to manage it logistically and institutionally? Significantly, will the Chinese companies and human resource be satisfied with the security arrangements provided by Pakistani authorities? These are some major security challenges that Pakistan will have to deal with for the sake of CPEC, which has been termed by both China and Pakistan, as a crucial component of contemporary bilateral relations. I will provide policy input, in this respect, in the upcoming articles in this series.

SOURCE:https://dailytimes.com.pk/255100/cpec-the-governance-challenges-ahead-ii/

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‘CPEC is not a gift’: Professor Jia Yu at the CPEC 2018 Summit

Pakistan should not take CPEC for granted, writes Dr. Jia Yu. Both public and private sectors must take ownership of the opportunities.

 

The economic relations between the two countries have been phenomenal, especially since the turn of the century. Early economic cooperation was based on political and security interests, like Karakoram Highway, nuclear capability, arms trade etc. Also, it was focussed on energy and mining, but there is now a need for diversification. Pakistan has to take advantage of China’s rise on the global scene. There is a tendency towards having even better economic relations based on market forces and there is a lot of under-exploited potentials.

When it comes to win-win cooperation, of course, there is a lot at stake for both countries. Pakistan’s interests lie in promoting growth, private sector investment, employment, exports, technology and transfer of skills as well as in the relocation of Chinese firms. China’s interests lie in overseas production bases, new export markets, energy cooperation, and its need for production capacity relocation.

A successful execution of CPEC will ensure economic progress and stability for both the countries, particularly along the border region.

The two countries signed the FTA in 2006 which came into effect a year later. The FTAs play a major role in the general tendency of increasing trade. Surprisingly, the trade has been relatively low compared to the other neighbors (India, Vietnam, Philippines etc.). And there is a large and widening trade imbalance that needs to be worked on.

There has been a considerable increase in FDI since 2014 which is a positive sign for both China and Pakistan. The main FDI sectors by priority are: power, construction, financial services, and communication. There is, however, very little FDI in the light manufacturing sector.

The Belt and Road Initiative (BRI) is a $900 billion investment, with finance channels targeting green development. It connects more than 60 countries, 60pc of the global population, 30pc of global GDP, and 35pc of global trade.

CPEC, a central link of BRI, cuts 10,000 miles of shipping by sea, and connects ports from Shanghai to Africa and Europe through Gwadar.

PAKISTAN AND CPEC

If things work out smoothly, Pakistan could use the FDI in its power and transport infrastructure and then in the manufacturing sector with the experience of leveraging SEZs to unlock this trio’s potential for rapid gains in job-rich industrialization. This can be done without unrealistic pre-requirements as the work to lay the foundations for industrialization has already begun.

The potentials are outlined below along with policy options needed to convert them into actions. At a regional level, Pakistan has been growing steadily in terms of GDP per capita since 2010, according to the World Bank. Investors are very keen to a growing economy. Consistent growth of purchasing power (GDP per capita) really matters for domestic consumption; therefore the growth rate must be maintained to catch up with competitors.

Pakistan is one of the world’s largest reservoirs of human capital and has a tremendous potential consumer base. In 2016, the country was home to 193,203,476 people, being the world’s 6th most populous country. World Economic Forum estimates that it will be among the top five populous countries in the world by 2060.

However, a large population is necessary but not sufficient to attract investors. The population has to be equipped with adequate skills to meet industrialization needs. An effort is also needed to attract global buyers.

Thirdly, China and Pakistan have long hailed each other as “all-weather friends”, or “iron brothers” as close as “lips and teeth” in the words of The Economist. There is already solid trust between the two countries, but the Pakistani officials need to visit China more often to convince the private investors for investment opportunities in Pakistan.

The CPEC will improve road, air, sea, and energy infrastructure. It will ensure land, sea and air security. It will enhance trade and investment facilitation and will establish free trade areas that meet high standards, maintain closer economic ties, and deepen political trust. Also, it will enhance cultural exchanges and promote mutual understanding, peace, and friendship between the people of the two countries.

Having said that, the CPEC should not be considered just a ‘gift’ from China, but the Pakistani government should also establish an FDI Advisory Board that shall promote the new image of the country. This includes visiting China more often and ensuring that investors understand the opportunities and benefits available under the CPEC.

Besides, according to the State Bank of Pakistan in November 2017, the country received net FDI worth $207 million out of which $206 million came from China. Potential investors pay significant attention to first movers, other Chinese investors may follow and eventually stay in Pakistan if the government helps the pioneers to be successful.

In terms of binding constraints, a study case of Malaysia estimates that FDI can effectively contribute to growth if it is at least 3.14pc of GDP. Pakistan should be able to compete. This requires overcoming the binding constraints by addressing security issues and risks, hard infrastructure challenges, especially SEZ-specific constraints like energy, roads to SEZs etc. Soft infrastructure challenges include corruption, rule of the law, coordination among institutions, inadequate capacity and cultural biases. Absorption capacity can be adjusted by setting yearly realistic targets of FDI amount.

There are six steps to identify the right industries, as narrated by Prof. Justin Lin. They include identifying countries with consistent growth, with GDP per capita three times as Pakistan’s or was at the same level as Pakistan 30 years ago.

Next comes investigating the existing private investment in those target industries and encourage its development by leasing the market regulations. Attracting global investors into the target industries which lack existing domestic private investment is the third step, followed by paying attention to new enterprises and supporting innovation in the target industries.

Establishing and developing SEZs to eliminate entering barriers, attracting foreign investment, and encouraging industrial cluster. And, finally, providing policy incentives for the first movers, including tax reduction, foreign exchange access, etc.

THE WAY FORWARD

Development can start from ‘low-hanging fruit’ through SEZs. The government should attract first movers to invest and help the pioneers succeed.

CPEC should not be taken for granted. A proactive and systematic approach is needed for attracting investors, together with strong market factors.

Despite long-term and solid trust at the government level, more mutual dialogues and exchanges need to be enhanced in the private sector. Let the peoples get to understand each other.

CPEC and SEZs are open for all investors, including those from other countries beyond China.

The writer is a professor at the Institute of New Structural Economics (INSE), Peking University, China.

SOURCE: https://www.dawn.com/news/1409721