Did the Pakistan army forget to brief the new government in Islamabad on the country’s official stand on the China Pakistan Economic Corridor (CPEC)? Or has Pakistan really changed its stand on the project? If so, does it have something to do with the country’s mounting debt and the foreign exchange crisis? These are a few questions which have cropped up in the past few weeks owing to the recent developments related to CPEC, often referred to as the crown jewel of Chinese President Xi Jinping’s Belt and Road Initiative (BRI).

What are these developments? To begin with, Pakistan is reported to have capped the potential value of the CPEC programme to $50 billion by 2030, down from $62 billion. It has decided to starve the western overland route from Xinjiang to the Chinese-operated Arabian Sea port of Gwadar of funding. It has brought down the proposed spending on the Karachi-Peshawar railway line by $2 billion. Not long ago, a senior economic adviser to the government, Abdul Razak Dawood, said that CPEC had been badly negotiated, hinting that the new government in Islamabad wanted to review at least some parts of the project. Imran Khan, who will be in Beijing on 3 November, is likely to seek a “significant shift” in the projects part of the programme.

Pakistan's economic woes - an unsustainable current account deficit and severely depleted foreign exchange reserves - may have nudged the country into seeking changes, it has been suggested. Islamabad’s decision to invite Saudi Arabia to develop a massive refinery complex at Gwadar, the port city at the heart of CPEC, is also being seen as an attempt to diversify its options. The decision to invite the Saudis, Pakistani Finance Minister Asad Umar has accepted, was taken without informing the Chinese. Viewed together, these developments would suggest that Pakistan is rethinking CPEC.

However, some arguments have come up against this view.

One, Pakistan could have cut funding on some projects under CPEC to make negotiations with the International Monetary Fund (IMF) for a bailout which it desperately needs to ease its economic crisis.

US Secretary of State Mike Pompeo has warned that any potential IMF bailout for Pakistan should not provide funds to pay off Chinese lenders.

“Make no mistake. We will be watching what the IMF does,” Pompeo said. “There’s no rationale for IMF tax dollars, and associated with that American dollars that are part of the IMF funding, for those to go to bail out Chinese bondholders or China itself,” he had noted in an interview with CNBC.

Moreover, Pakistan was required to share some details of debt related to CPEC with the IMF. Pakistan had agreed to do so, saying the decision to approach the IMF was taken after consultations with “friendly countries”. China, while saying that it supported the move, had asked the IMF to “objectively and professionally” evaluate “the situation on the ground in Pakistan” for the bailout.

“As a member of the IMF, China supports the organisation having cooperation with Pakistan in objectively and professionally evaluating the situation on the ground in Pakistan,” it had said. “Also we support the IMF (helping Pakistan) in coping with the current difficulties. Their measures shall not affect normal bilateral cooperation between China and Pakistan,” Beijing had warned.

Soon after, IMF managing director Christine Lagarde confirmed that Pakistan has formally approached the IMF seeking financial assistance.

However, even before talks with IMF could gain momentum, Khan declared that Pakistan may not have to seek an IMF bailout as some “friendly countries” had agreed to provide assistance. In the latest development, Saudi Arabia has agreed to give Pakistan $6 billion - $3 billion in deferred payments for oil imports and $3 billion for a period of one year as balance of payment support - to relieve its economic crisis.

Khan, who is currently in Saudi Arabia, is set to visit Malaysia and China before returning to Islamabad. He would spend a week in China, where he is expected to seek Beijing’s help to shoring up foreign exchange reserves.

Therefore, it can’t be ruled out that Pakistan was preparing ground for negotiations with the IMF by cutting down funding for projects under CPEC.

Pakistan's Economy

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