PMs’ China visit, fiscal crisis
It appears that at this point of time China has not given firms commitment to help its deep and trusted friend Pakistan out of its grave fiscal crisis, save signing a number of agreements and memoranda of understanding for future economic cooperation. China said on Saturday it was willing to offer financial assistance to Pakistan to weather its current fiscal woes but the terms of such aid would be discussed. Does it mean lack of proper homework on both sides? Pak-China joint statement speaks of expansion in ties but contain no assurance of immediate support
The lack of firm commitment for granting a bail out package followed a meeting between the Prime Minister Imran Khan and his Chinese counterpart Li Kiqiang. The Prime Minister had also met the Chinese President Xi Jin Ping the other day. Likewise China has not indicated to open its market for exports from Pakistan to reduce Pakistan’s huge trade deficit with China which is about $ 13 billion. It was because of this unfair play in bilateral trade that the United has to impose heavy duty on Chinese exports to America. Pakistan has given zero import duty concession to China on 35 tariff lines but has got nothing on reciprocal basis for exports to it.
Following Chinese Premier meeting with Prime Minister Imran Khan, Vice Foreign Minister Kong Xuanyou said that two sides have made it clear in principle that Chinese government will give assistance to Pakistan to tide over the current economic difficulties. But for specific measures, the competent authorities of the two sides will have detailed discussions, Kong told reporters. However, he assured that despite Pakistan’s looming balance of payment crisis, there are no plans to scale back china Pakistan Economic Corridor (CPEC). He vaguely hinted it will be altered somewhat to tilt in favour of areas relating to people’s lives. Perhaps he was referring to Chinese desire to enter the agriculture sector of Pakistan for guaranteeing the supply of food commodities to China as there are no bold indications of China’s cooperation for skill development of Pakistani manpower for employment in the conceived special economic zones (SEZs). China, willingness to enter in agriculture sector has been objectively commented by experts in print media. Their analysis implies that it may not be fairly beneficial for the people of Pakistan at the micro and macroeconomic levels.
Media reports had earlier said China was preparing a $ 6 billion package of aid including soft loans and additional investment for CPEC. Pakistani leadership seemed optimistic that China will provide the much needed liquidity support enabling Pakistan to meet its foreign debt and balance of payment obligations which is not forthcoming. It is worth mentioning that Saudi Arabia is releasing the first installment of 1 billion dollars to Pakistan. The Kingdom has agreed to deposit $ 3 billion in the State Bank of Pakistan and will provide oil worth $ 3 billion on deferred payments/.
In the prevailing scenario, financial support from the multilateral donor agencies is the viable option to mitigate the economic woes. The International Monetary Fund (IMF) team is arriving Pakistan within the next few days to begin loan programme negotiations. Previously, the lending agency asked the successive governments to privitise the bleeding state owned institutions and expand the tax base preferably through direct taxes to reduce the budget deficit. However, these conditions were not fulfilled. PTI government has also made it clear that privatisation is not part of their economic agenda. However, it is anxious to sell out the profit making public sector enterprises. Privitisation commission in its meeting last week recommended to government to privitise 11 profitable state entities but surprisingly dropped the hemorrhaging state owned enterprises (SOEs) including Pakistan International Airlines (PIA), Pakistan Steel Mill (PSM). The loans liability of PIA has reached Rs. 500 billion and it is incurring losses of about Rs. 40 billion annually. PSM has eaten up Rs. 400 billion taxpayers’ money so far and Pakistan Railway is making Rs. 37 billion losses every year. The approved list of Council of Common Interest contained 62 enterprises for privatisation. The aggregate losses of inefficient SOEs have reached Rs. 1.1 trillion.
Likewise at the time negotiating the bailout every government promised to expand the tax base but backtracked on its promise of taxing the rich people after availing the IMF loan facility. The axe of indirect taxes fell then on poor people. Let us hope this time sanity will prevail to fulfill the IMF conditions of privitisation and broadening the tax base through tax