If COVID-19 does stall/delay Chinese ‘aid’ to Pakistan, which is heavily dependent on it, the latter could be saddled with incomplete projects and unsustainable interest payments
As the inevitability and magnitude of the impact COVID-19 would have on global economies sinks in, with estimates worsening day by day, there is no denying the fact that those economies substantially dependent on China will be poised precariously. The traditional Chinese Sinosphere stratagem had been to bankroll, financially and diplomatically, desperate regimes with the help of readily available, uncomplicated and “non-judgmental” Chinese largesse. The dragon leveraged its treasury to systematically ensnare alienated regimes in Pyongyang, Islamabad and Tehran among others to even include financially gasping countries in Latin America, Sub-Saharan Africa, right across to Polynesian Islands, all under its tutelage.
The Chinese economic juggernaut funded its hegemonic instincts and Beijing rapidly connected the dots with “win-win” infrastructural projects like the Belt and Road Initiative (BRI), supporting inter-linkages like the China-Pakistan Economic Corridor (CPEC). For this purpose, it even used the ports around the String of Pearls, which vassalised nations and made them directly susceptible to Chinese whims as also fate.
Pakistan is among the most hinged nations within the Sinosphere, which is poised to feel the direct squeeze of COVID-19. China will inevitably recalibrate its priorities and focus on protecting itself from immediate damage before being concerned about others. Extreme paranoia about managing the expectations of its 1.4 billion population, to avoid a USSR-like implosion, haunts the regime. Such are the insecurities faced by the single-party Government over there. China deploys a combination of fear, opportunities, populism and nationalism to willfully or unwilfully get its populace to accept one-party rule. The bargaining assurance is continuous societal progression of the Chinese masses and their lifestyle.
Undeniable progress on various socio-economic parameters has allowed that bargain between the regime and the Chinese people to maintain the status quo. Now, this economic miracle runs the real risk of a very hard landing as the entire Chinese ecosystem goes into a COVID-19 “containment mode,” which will necessitate a pullback from internationalist priorities. Top Chinese priority would now be on a domestic stimulus package that entails a slew of Government-led spending, investments, subsidies and all sorts of deliberate financial pumping that will automatically shrink budgets for external endeavours, at least temporarily.
Meanwhile, the Pakistani economy is on a ventilator mode. It has partaken a record 22nd bailout package from the International Monetary Fund (IMF) besides the many “aid packages” from China, Saudi Arabia, Qatar and the United Arab Emirates (UAE). While the conditionalities of the IMF’s $6 billion Extended Fund Facility (EFF) will be subject to unpopular economic reforms and would be doled out only in tranches, the Chinese have been the single most generous source, donating $4.6 billion in the form of deposits and commercial loans.
Ties with the US are circumspect. Though the Taliban peace deal may force optics of a thaw but hopes for any meaningful financial aid from Washington, DC, are highly unlikely. Not only has Pakistan maxed out its deals with Saudi Arabia and the UAE but it has unendeared itself to both Riyadh and Abu Dhabi recently by cozying up to a rival “bloc” within the Ummah ie, the Turkey-Malaysia-Qatar-Iran combine. This leaves limited scope for any more substantial inflow from the Arab Sheikhdoms. Pakistan has extremely limited manoeuvring space. The only viable option is/was China.
Our neighbour has survived embarrassing defaults in the balance of payment timelines by borrowing more. The singular hope that is described by the establishment over there as the “game-changer” is the China-funded CPEC. This $62 billion infrastructural hope is mired in dangerous opacity with credible murmurs of disproportionate pro-China terms, sovereignty compromises and an eventuality of China’s fabled “debt trap.” All of this leads it to abject surrender to Beijing. Law-makers had earlier likened the CPEC to a modern-day East India company, yet with no alternatives for an economic revival in sight, the CPEC is the sole sovereign punt.
Such are the stakes involved that the Pakistani military has raised and deployed a dedicated division to protect the CPEC imperatives. It is now raising a second dedicated division level force. The gargantuan investment in CPEC is “aided” by China. The CPEC project has just completed phase-I but the forthcoming phase-II is predominantly about industrial cooperation, agriculture and trade — essentially the component that is more relevant to the Pakistanis than the Chinese.
The timing of COVID-19 could not be worse from Islamabad’s perspective as phase-II and its benefits are key to its economy’s survival. The US Secretary of State Mike Pompeo had openly warned the IMF a couple of years back against bailing out Pakistan. He feared that such an aid would be used by it to repay Chinese lenders. Today, the bill for full Chinese “aid,” if it were still to be given, could compound to a crushing estimate of nearly $100 billion over the next three decades. If COVID-19 does stall the Chinese “aid”, then Pakistan could be saddled with incomplete projects and unsustainable interest payments for the “aid” already taken.
Beyond bailouts and commerce, “all-weather friendship” has seen China provide invaluable diplomatic and military provisioning. While this could continue, the material wares may not necessarily come on terms as “soft” as earlier, given the financial angularity. Islamabad is also over-indexed in trade with a whopping 18 per cent of its total trade with China. This also accounts for over 31 per cent of the total imports by Pakistan. This disproportionate tilt exacerbates the Pakistani situation with looming disruptions from China.
While the exact long-term impact of COVID-19 is still unknown and China is known to have sufficient economic buffers, wherewithal and a strategic commitment to withstand setbacks with speedy recalibrations, the health of Pakistan to withstand even a temporary “switch-off” is suspect. Pakistan is too dependent on China to manage without its “aid”, especially given its recent relationships with other potential donors.
Unsurprisingly, Pakistan has pitched countries like Turkey to sell the CPEC dream and incredulously so, even the US. American diplomat Alice Wells nipped the idea in the bud by sounding out the alarm bells on CPEC per se, even without accounting for the new curve-ball of COVID-19. This could be the proverbial last straw. As of now, all global economies are mired in untellable uncertainties of post-Corona revival, some completely China-hinged like Pakistan, worse so.
(The writer, a military veteran, is a former Lt Governor of Andaman & Nicobar Islands)
