China didn’t cause Pakistan’s financial crisis but it should play a role in helping to solve it

Arif Rafiq says Pakistan’s economic woes have been caused by poor policymaking, not its projects with China, but how Beijing reacts will be a lesson to its other belt and road partners

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Pakistan's Chief of Army Staff Qamar Javed Bajwa meets Chinese President Xi Jinping in Beijing on September 19. Photo: Xinhua

Published: 2:00pm, 30 Sep 2018Updated: 6:52pm, 30 Sep 2018

Pakistan faces another balance of payments crisis and may again head to the International Monetary Fund for help. China and its Belt and Road Initiative have been blamed – unfairly – for the crisis, but the real culprit is poor economic policymaking.

Pakistan’s economy grew by 5.7 per cent in the previous financial year, but has been unbalanced. A rise in fuel and machinery imports has overlapped with a net decline in exports in the past five years. Pakistan’s foreign exchange reserves have depleted quickly since August 2016.

Energy is Pakistan’s single-largest import. Pakistan’s electric power and energy strategies are presently too dependent on imported fuels. To break this cycle, the nation requires a shift towards renewables and domestic fuels, including biogas and natural gas. Unfortunately, the previous government stifled hydrocarbon exploration, focusing solely on costly imported liquefied natural gas. Its efforts to reform the electricity sector have also lost steam.

Imported coal and machinery have also been used for new power plants, roads, bridges and tunnels through the China-Pakistan Economic Corridor, exacerbating Pakistan’s current account deficit.

Many projects selected by Pakistan’s previous government were ill-timed. For example, it rushed to complete a commuter rail line for Lahore before this summer’s elections, when such projects could have been deferred in favour of those that would boost exports more quickly. And the economic corridor should have been paired with an aggressive export incentive programme to offset the outflow of dollars.

A building stands under construction at a development site, operated by China Overseas Ports Holding Co, near Gwadar Port in Balochistan, Pakistan, on July 4. The former small fishing town on the southwestern corner of Pakistan is making way for the construction of roads and buildings to house banks, and insurance and clearing agents. Photo: Bloomberg