Saudi Arabia may not be part of CPEC, but Pakistan set to use Kingdom to offset growing Chinese debt
Beijing continued to believe that Islamabad would remain loyal to China for the CPEC windfall without hesitation. This has become unsustainable now.
Pakistan has clarified that Saudi Arabia will not be made part of the Beijing-led China-Pakistan Economic Corridor (CPEC) framework and Riyadh's proposed investments in Pakistan are set to fall under a separate bilateral arrangement. Pakistan's new PTI government had recently claimed that Saudi Arabia was poised to become the third partner in the CPEC — that consists of major infrastructure projects in Pakistan. The announcement was made after Pakistani prime minister Imran Khan's first official State visit to Riyadh.
Ever since assuming power, the Khan-led government has been trying to make use of the CPEC as a bargaining chip in Pakistan's vital bilateral relationships. His government is seriously contemplating a reduction of its spending on the CPEC project that could rejuvenate its outdated rail network, while proposing several changes in the existing and future projects. These drastic measures are in part aimed to correcting a difficult financial condition aggravated by an unsustainable current account deficit.
Criticising his predecessor Nawaz Sharif, for lack of transparency in the CPEC projects, Khan has argued that the former prime minister could not visualise the fallout of massive inflows of Chinese machinery on the country's external finances. During his 6 October visit to Quetta, the capital of Balochistan province, he expressed complete awareness about the reservations of Baloch people about the CPEC projects. He asserted that "Balochistan would be paid more than its due share in the CPEC projects," while arguing that the province was ignored by the previous governments.
It needs to be recalled that immediately after Chinese foreign minister Wang Yi's Islamabad visit last month, a senior Pakistani government official termed his country's deals with China as "unfair" because the CPEC agreements tended to benefit Chinese companies alone. Abdul Razak Dawood, the prime minister's advisor, was quoted as saying that "the previous government did a bad job negotiating with China on CPEC — they didn’t do their homework correctly and didn’t negotiate correctly so they gave away a lot."
However, the Pakistan government immediately swung into action and refuted this controversial statement while reaffirming the all-weather friendship between the two countries. Pakistan’s finance minister Asad Umar candidly admitted, "We don’t intend to handle this process like Mahathir (Mohamad, Prime Minister of Malaysia)." It needs to be mentioned that Kuala Lumpur has recently cancelled three major China-backed pipeline projects and put a showpiece Belt Road Initiative (BRI) rail link under the scanner.
After much dilly-dallying, Umar finally hinted on 5 October that Pakistan is going to apply to the International Monetary Fund (IMF) for a balance of payments bailout as he expressed Pakistan’s readiness to take "further corrective measures" proposed by the IMF to restore economic stability. But this bailout will not come without a political cost. Khan has been reluctant to seek an IMF bailout during his first 100 days in office because his electoral campaign had been based on getting rid of the begging bowl. This reasoning has led him to meet funding requirements from friendly countries as well as through bringing home foreign wealth of Pakistani nationals.
But the government's economic advisors are totally against this impracticable way as Pakistan requires around $12 billion of additional infusion during the current fiscal year. Moreover, the US secretary of state Mike Pompeo has publicly spoken against lending any American money by the IMF to Islamabad for settling Pakistan's Chinese debts.
It is understandable that the PTI government is looking to Riyadh to bail it out of its financial woes, which made Khan to break his so-called pledge of not travelling abroad in his first three months in office. Within four weeks of coming to power, his decision to visit Riyadh reflected the desperation of his situation as well as the fear of the political consequences of being seen weak among his supporters. He received a very warm welcome in Riyadh, which indicated a new beginning of a very critical relationship that was badly hit when the previous PML-N government refused to send Pakistani troops to Saudi Arabia to fight in Yemen in 2015.
This fateful decision had also affected Pakistan's ties with other Gulf countries. But despite the recent lack of warmth in bilateral ties, the Kingdom’s close ties with the Pakistani military remains intact, as exemplified by the appointment of retired army chief Raheel Sharif as head of the so-called ‘Islamic alliance force’. However, Khan’s decision to invite Saudi Arabia to develop a refinery at Gwadar also indicates Pakistan’s willingness to serve its geopolitical interests through the CPEC. The Pakistani finance minister has admitted that Islamabad did not keep Beijing in the loop, and China was only informed of Pakistan’s intent to involve a third-party investor.
Pakistan was also trying to use Gwadar as leverage to persuade Riyadh to provide Islamabad with oil on a deferred-payment basis which would substantially reduce the amount of borrowing from the IMF. The Saudis are equally interested in investing in some big-ticked projects in Pakistan as part of their "Vision 2030" development plans that seek to expand their economic horizons and diversify from a largely oil-based model through collaboration and foreign investments.
The entry of Saudi Arabia in the equation — the most important non-NATO ally of the US in West Asia — clearly indicates the protection of American geopolitical interests in the CPEC, directly or indirectly. The ambitious Saudi crown prince Mohammad bin Salman has courted the Donald Trump administration to counter Iran's growing influence in the West Asian region. Salman has involved Saudi Arabia in a bloody military conflict in Yemen against the Iranian-backed Houthi militia. It is believed that Pakistan’s CPEC offer to Saudi Arabia to invest in western Balochistan bordering Iran and Afghanistan could upset Tehran. The fears that allowing Saudi Arabia to play an active role close to the Iranian border may fuel sectarian conflict in Pakistan are not entirely baseless. Moreover, Iran would certainly not desire a Saudi presence in Gwadar which is not very far from the Chabahar port.
Although Saudi Arabia has been China’s largest trading partner in West Asia, since the dynamics between them within the CPEC would redefine the engagement in West Asia in terms of global politics and economy, Beijing cannot be expected to remain a mute spectator to this sudden turn of events at a time of greater global geopolitical turbulence. Since the issue of issue of inviting Saudi Arabia into the CPEC involves a number of questions about new geopolitical alignments, the PTI government has taken a U-turn, at least in public.
Speaking at a joint news conference with Pakistan's information minister Fawad Chaudhry on 2 October, Minister for Planning and Development Khusro Bakhtiar clarified that there was no decision to bring Saudi Arabia under the framework of the CPEC. He said, "Saudi Arabia is not to become a collateral strategic partner in the CPEC. This impression is not true... The framework between China and Pakistan is bilateral, and Saudi Arabia is not entering that framework as a third-party investor, rather the base of CPEC will be broadened and its pace will be expedited."
Whatever the semantics, there is a strong possibility that Saudi Arabia is going to invest heavily in Pakistan's infrastructure projects, within or without the CPEC.
China has been turning the CPEC into a grand project to maintain incontestable hegemony in Pakistan. Beijing continued to believe that Pakistani government would remain perpetually loyal to China for the CPEC windfall and keep on reaping its benefits without hesitation or any hint of incredulity to Pakistani people, however inconsistent, contradictory, or at odds with the ground realities. This has become unsustainable now.
Most surprisingly, Maulana Samiul Haq, who is known as the 'Father of the Taliban', and who favours more Chinese involvement in the resolution of the Afghan conflict, has urged the PTI government to treat China with caution while dealing with a worsening financial crisis. He is reported to have said, "I don’t approve of a relationship that leads us to slavery. Given their (Chinese) handling of Muslims at home, the Chinese will behave like the British East India Company once they dig their feet deeper into Pakistan." As local resentment has begun to move from the streets to government, China seems to be facing the growing challenge of a tactical shift in Pakistan’s official tone from uncritical gratitude to grudging support.
Trying to prevail over critically fragile public finances as well as realising the advantages of hard-bitten realism, Khan has begun to make concerted efforts to revise the terms of engagement on the CPEC projects. When he goes to China in November for a week-long official visit, Beijing is expected to try hard to pacify him by offering more agreeable terms of CPEC projects as well as by agreeing to reschedule some of the bilateral debt. This development simply vindicates India's s principled stand of consistently opposing the Chinese model of infrastructure development through its ambitious BRI which is nothing but a disguised form of ‘debt-trap diplomacy’. Therefore, India should continue to work with the US and other partners in the Indo-Pacific region to develop credible alternatives to the China-led BRI.
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