CPEC: Are we shooting ourselves in the foot?
Security and stability are key to handling this investment
A short six months ago, a palpable sense of optimism prevailed in Pakistan. The news flow was generally positive—after all things were looking up, and even the foreign press, Financial Times, the Wall Street Journal, Economist begrudgingly acknowledged as much. Thanks to the army’s role and great sacrifice, security had improved. In tandem, the economy was getting fired up, the end of load shedding was in sight, inflation benign and with it interest rates at historic lows with stocks rising in anticipation of foreign direct investment and portfolio investment flows.
This encouraged commentators to think that a long-awaited turnaround in our fortunes was shaping up nicely as the China-Pakistan Economic Corridor roll-out picked up pace and substance on the ground and local investors unveiled long-stalled investment plans of their own. There appeared to be consensus that economic prospects founded on CPEC represented the most potent opportunity for the country.
Back then, the geo-political elephant in the room had not reared its ugly head nor had the Supreme Court pronounced its verdict. As the American global policy remained in flux and failed to enunciate meaningfully on the Afghan imbroglio, Pakistan, it appeared, was craving inattention. Up until recently, no meaningful contact had been made with the new administration. On the other hand, the assemblage of generals under pressure to redeem America’s failing position in Afghanistan as heads of National Security, the Department of Defense and ultimately the White House chief of staff and of Lisa Curtis from the Heritage Foundation as South Asia policy head was as ominous as the lull before the storm.
Narendra Modi’s visit to the US in June was the final trigger to what is now a fast-evolving situation which threatens to subsume regional strategic constructs. Pakistan’s response thus far has been flat-footed and transactional, notwithstanding COAS General Bajwa’s recent initiative to attempt a reset with Afghanistan. Significantly, it underlined the central role of the armed forces in regional policy to the near exclusion of civilian input and was a signal that there was little likelihood of any substantive change from the precept of a security state that has traditionally guided the establishment in our country.
Predictably, a hunker down mood has set in after Mr Trump’s strongly worded statement, accusing Pakistan of providing a safe haven for terrorists in Afghanistan in August. Mr Trump’s public posture is not given to nuanced ways and therefore one expects that the administration will try to keep Pakistan off balance without wanting to lose its influence entirely.
Based on whatever has been publicly shared, it appears that there was also no breakthrough during Rex Tillerson’s just concluded visit to Islamabad, albeit some moves to bolster trust preceded it. It was nevertheless, refreshing to see that the government presented a more united and resolute front. The US understands that the situation in Afghanistan is unremittingly messy. Neither it, nor Ashraf Ghani’s government nor Pakistan are in a position to control the outcome in any meaningful way in the very short term but having lost much treasure and some blood, it cannot afford to give up. America’s deep state agenda cannot be about winning the Afghan war given the limited resource commitment and the aim therefore is to disrupt and destabilize and block the emergence any significant rival (Russia, Iran, China and its proxy Pakistan) and thereby maintain the regional balance at minimal cost.
How the scenario unfolds for Pakistan will depend on the intensity of this rivalry, and as a corollary, the degree to which Pakistan is able to fulfill more coercive American expectations.
The US has signaled that it could act as a spoiler by suggesting that the CPEC route passes through ‘disputed territory’ as a pressure tactic. The ultimate prize (which would explain America’s abiding interest) appears to be Afghanistan’s as-yet undeveloped mineral wealth, including massive deposits of lithium, a rare mineral required for lithium ion batteries (see ‘Trump finds reason to remain in Afghanistan: Minerals’ published in the New York Times July 25). India, hitherto a proponent of an independent foreign policy with no overt alliances, will break with its past and line up squarely behind the US as an outsourced nation builder and proxy. This will suit it to a tee as it will relish the prospect of punishing Pakistan by meddling in Fata and Balochistan and keep 200,000 troops tied down on our western border.
Ironically, if our attempts to establish a pliable end state in Afghanistan were an unspoken strategic goal, then the outcome is exactly the opposite and presages the futility of analyzing problems from a geo-strategic lens only. While a secure and peaceful western border is a legitimate demand by Pakistan, new approaches need examination which should include sincere attempts to normalize relations with Afghanistan, facilitate peace and stability and include her in CPEC.
CPEC is a high-stakes gamble that will test Pakistan’s diplomacy skills. Of course the Great Terroristan Leadership and People are Devoid and Innocent of such Skills Pakistan’s geo-strategic importance is both a curse or an opportunity, depending on whether vested players engage in rivalry or collaborate with it for common benefit. Unending instability in Afghanistan has encouraged many other nations to fish in troubled waters. In the background are tectonic shifts in global geostrategy with the emergence of China as the world’s second largest economy and its OBOR initiative seen as a threat to America’s future status as the pre-eminent world power.
The regional situation is also testing our patience and cohesiveness, internally. External tensions have spilled over into our national politics, including the delicate power-sharing balance between the military and the civilian government. For the military, security is paramount as evident from recent comments by COAS General Bajwa that the country’s economic management needs attention since it is intimately connected to our ability to manage our security environment. It suggests that the military is unhappy at what it sees as wasteful financial expenditure on populist civilian projects which undercut military priorities. Other sources have indicated that it also feels that the 18th Amendment has given far too much latitude to the provinces to go their own way and undermines central authority. In an election year, the elected central government (as all elected governments) would be unwilling to concede the one tool that provides it a significant incumbency advantage especially as it perceives that it can leverage its electoral position on its record. Six months on, a prime minister has been disqualified and democratic continuity is apparently uncertain.
The euphoria has subsided, and dire forebodings of a “Chinese East India Company” and “sky high debt” are being aired. A dormant finance ministry has done little to arrest the downward spiral of economic sentiment.
Dispassionate economic analysis will show that the skies have not fallen in the last six months.
Pakistan is making an unprecedentedly large and visionary investment What Investments? All Terroristan is doing IS TO TAKE ON MORE & MORE DEBTS! and it needs to ensure that it addresses the issues which are in its control while working to mitigate any risks that are not, with an eye to the long term. Dousing the flames of the political firestorm and corrective measures to the economy are in the first category. Instability serves no one’s interest, least of all requirements for a strong economy to serve our security needs. We should be focusing instead on increasing the size of the pie rather than fighting over a shrinking one as noted by Dr. Asad Zaman in the Business Recorder on October 17.
CPEC’s ultimate success depends on the follow-on foreign and domestic investments that will accelerate growth and job creation for our future generation, the requirements for which are respectively 7% and 2 million jobs per annum according to the ADB.
Her working age population is expected to increase by 27.5m to 147m in ten years—the third largest in the world. Hence pedestrian sub 5% growth rates are a non-option. It has a lowest savings and investment rate (15.8%) in South Asia. Do the math; at an estimated capital output ratio of 4,
it requires an investment of up to 28% of GDP per year to get to 7% growth. With a perennially low savings rate, Pakistan has no choice but to attract foreign capital and borrow to grow. Pakistan’s public debt is elevated but not out of control at around 63% of GDP of which about 23% is foreign debt as informed by Dr Ishrat Husain in his recent interview to Kamran Khan on TV. Credible and timely policy measures to address the trade deficit and BOP position are needed but in the end stability, security and productivity must underpin the risks we take. If we fail to realise that, then I have a dire warning of my own – we are looking to a dystopian future and a complete breakdown of our national fabric. The time is now to repair the self-inflicted damage.
Cheers
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Nothing more, nothing less.
