China better than US for Pak economy

Over the past year, the PTI government’s economic focus has been on redressing macroeconomic imbalances. However, there are a host of other policy problems that require honest, competent and decisive decisions.

The recent $5.9 billion award by the World Bank’s court (ICSID) against Pakistan is a classic outcome of misplaced patriotism, incompetence and corruption. Like India, and as suggested by the UN trade organisation UNCTAD, Pakistan should have long ago denounced the unequal investment treaty which allowed a foreign company to sue it.

Over 300 government entities cumulatively lose two per cent of Pakistan’s GDP each year. Everyone agrees these entities have to be restructured, divested or closed down. For over a decade, nothing has moved.

The allocation of government land and financing of home acquisitions are traditional vehicles for wealth creation and GDP expansion, as illustrated by the history of America and modern China. In Pakistan, by contrast, government land has been parcelled out through official entities mostly to house the rich and powerful rather than the poor or middle class. This has accentuated economic and social inequality.

The establishment of Special Economic Zones including under CPEC have been delayed mainly due to the fight over whose land would host the zones (and be sold at enormous profit).

Pakistan’s major cities are drowning in their own filth, as illustrated by Karachi’s plight after last week’s monsoons. Karachi produces 11,000 tons of solid waste daily; Lahore 7,000; Hyderabad 4,000, etc. Waste-to-power plants are one answer to dispose of solid waste. Realistic power rates and collection fees are essential to attract investment for these waste-to-power plants.

Pakistan will be unable to fully exploit the vast Thar coalfield for power generation because there is insufficient water to cool the plants, the carbon emissions will be unacceptably high and the electricity produced is not much cheaper than alternatives because the cost of mining (with outdated equipment) is very high ($40 vs $8 in Virginia, US).

In Pakistan, manufacturing contributes only 10 per cent to GDP. The country will remain non-industrialised unless it builds the essential tariff and non-tariff “protections” for its nascent domestic industries and/or encourages its enterprises to enter into joint ventures with efficient foreign producers (who will enter such joint ventures if they cannot export into Pakistan).

Pakistan needs infrastructure to develop; only China is ready to build it; its official loans are “cheap” (2 per cent to 3 per cent with long repayment periods, akin to “grants”). The loans for power projects to Pakistani companies were “commercial” (around 6 per cent interest). Chinese companies have executed most of the projects, since Pakistan had limited capability to do so. The equipment supplied for the power plants was mostly Chinese but many of the turbines and boilers were sold by America’s General Electric. The power projects are highly profitable, perhaps excessively so. There is no “debt trap”. The Chinese loans will be easily repaid (unless the projects are rendered economically unviable by retroactive conditions).

Expanded cooperation with China remains the best route to Pakistan’s industrial and commercial development. In the afterglow of the Washington visit, some among Pakistan’s business and official elite seem susceptible to the Western propaganda against CPEC and China. They risk making a major strategic blunder.

By arrangement with Dawn