Earlier this month, the International Monetary Fund (IMF) expressed concerns over the government of Pakistan’s payment schedules of around Rs300 billion to the Chinese power producers operating in the country.
Initially it was reported that Pakistan was asked to withhold the payments, but later the Fund’s resident chief in the country refuted the news, citing Pakistan’s satisfactory response to the concerns. The government is looking to pay off the dues in Rs50 billion installments.
Now a staff-level agreement with the IMF is expected to get the pending $1 billion tranche approved and give a breather to the country’s troubled economy. Although the news of the IMF’s disapproval for payments to the Chinese Independent Power Producers (IPPs) has been discredited, Chinese investments have long been a bone of contention between Pakistan and the IMF.
The IMF tranche is part of a $6 billion Extended Fund Facility (EFF), for which to continue, the State Bank of Pakistan was made an autonomous body a few months ago. Such hard conditionalities have been entertained by Pakistan for decades, but its attempts to become economically self-sufficient fail time and again, bringing it to the IMF’s door every few years. This never-ending ‘borrower country’ status has as much to do with the restrictive conditions that the international regimes of development cooperation create for the developing world as it has with Pakistan’s own poor policies and mishandling of foreign finance.
In the thick of the current crisis, power shortages in the country are already on the rise, with over 16 power plants shut down, due to non-payment of dues and the inability to import fuel including furnace oil and coal. In May this year, the Chinese IPPs warned of shutting down their power plants. These plants were set up as part of energy sector projects approved under the China-Pakistan Economic Corridor (CPEC) agreement, that aimed to strengthen Pakistan’s industrial and infrastructure sectors. If Pakistan is to face pressure regarding its payment schedules to the IPPs, it will be to the detriment of domestic users and an already sterile industrial output. It also risks an increase in the several hours of unannounced electricity loadshedding.
International Financial Institutions (IFIs), heavily funded by the United States (US), have been casting aspersions on China’s development assistance in the Global South deeming it a ‘debt-trap’. This has been happening ever since Beijing embarked on its Belt and Road Initiative (BRI), of which CPEC was hailed as the flagship project. The argument was that excessive inflows of Chinese debt would bring in unneeded development. This would initiate debt supercycles in the borrower countries, with debt service inflated to a point where governments will have to go austere in every other aspect. The underlying fear was that this would win China control over the strategic infrastructure of those countries, which ‘could’ be used against the US in the race for hegemony.
This blurring of the line between development assistance and geopolitics shrinks the development space for the developing countries. They find themselves faced with the tough choice of going with either China, or the US-backed IFIs. By accessing Chinese finance, Pakistan fuels Western insecurities, which makes it all the more difficult to access IFIs’ funds. The damage could be mitigated even if Pakistan could choose to go with either China or the West, but neither of them have proven adequate to bail the country out of its perpetual fear of bankruptcy. Besides, the strategic and infrastructural dependencies render Islamabad unable to do away with either of them.
A close partnership with the US has historically helped Pakistan access Western development assistance and modern military equipment as well as pursue policy goals in Afghanistan and the region. Although post US-withdrawal from Afghanistan, relations between Washington and Islamabad hit rock bottom, there are influential factions in Pakistan who still think there is more to milk out of their Western ties.
On the other hand, China is seen as an instant creditor among a number of Pakistani policymakers and portions of the local market. CPEC, initially worth $62 billion, brought in an unparalleled network of road infrastructure and energy projects – mostly coal. Roads increased connectivity and reduced travel time and costs, while energy projects actually eradicated the power shortfall for a few years. But the investments are now proving unsustainable.
Moreover, China refuses to solely bear the weight of Pakistan’s enigmatic economy. In 2018, at a time when CPEC loans still offered a promise, Beijing encouraged the then PTI government to approach the IMF. Later, the same government started reopening and re-calibrating major CPEC agreements. Given the IMF’s skepticism of CPEC, it is not quite clear whether the move was Pakistan’s sovereign choice.
The same is happening again. The IMF believes that power agreements with China are charging the government of Pakistan unfairly, and therefore, the ongoing austerity drive must incorporate the costs Islamabad is paying to the Chinese IPPs. The question of fairness might be a compelling one, but the IMF has suggested little to nothing as to how Pakistan should cater to increased power outages in the aftermath, in case its independent dealing with Chinese finance is to be put under pressure.
In addition to the record-high inflation, currency devaluation, and taxation disaster, what augments Pakistan’s troubles is the struggle to strike a balance between its creditors. The situation spells all the more doom at a time when the country fears a potential default and the consequential social unrest of unparalleled volumes. The tug of war between the creditors tears deeper into Pakistan’s enfeebled economy, and denies it the very ‘development space’ they promise.
Therefore, the geopolitics of development is narrowing down the spectrum of choices for Pakistan. Instead of charting out development plans independently, based on local contexts, Pakistan has to constantly appease its creditors. The balancing acts that Islamabad has to undertake for uninterrupted foreign assistance deny it the freedom to choose its own destiny. It is a quagmire of fate for Pakistani people for whom development assistance still stands as a promise in the dark.
The writer teaches ‘Government & Politics’ at Bahria University, Islamabad. He tweets HamrazSarwani