The Shehbaz government is taking two steps that show its desperation for foreign exchange, the first being an attempt to make Chinese companies pay 20 percent of the project cost in fix CPEC projects that will go into special accounts and would be used only to pay rupee expenses, not being used even for letters of credit. In return for the deposit of $1.4 billion, Pakistan would expedite implementation.
That might be a clever scheme from Pakistan’s point of view, but surely somebody in China would notice that these projects should be expedited anyhow. Unfortunately, some of the hurdles that CPEC projects have faced have included failure to provide proper security, and to detect and punish criminals after they committed outrages against Chinese workers. There are also payment issues, and while projects have been put up, the Chinese claim payment for electricity generated is not forthcoming. While it is easy to demand that Chinese companies put up foreign exchange up front, there is the problem of whether the IMF will give Pakistan the go-ahead (not to forget that it is hardly a done deal; and the Chinese side has to be convinced). The IMF itself is scheduled to release $1.2 billion to Pakistan, which means that its leverage over Pakistan will be about the same as that of China.
In its scrabbling for foreign exchange, the government has tried to sneak in its ban on luxury cars and mobile phones by imposing hefty regulatory duties of 100 percent after lifting the ban, which the IMF told it to do. It could well have left the two items to be priced out of the market by the collapse of the rupee, which is still at Rs 215 to the dollar, and which is not expected to fall much further, even when the IMF gives Pakistan the money. Pakistan is in the midst of a foreign exchange crisis, but even if the government has the task of resolving the crisis, it must not attempt to go further than the inherent strength of the economy allows. At this juncture, the government must not attempt to put its basic responsibilities on sale, as it seems to be doing in the CPEC case, but must put its head down and do what is necessary to keep the country afloat, without driving anyone out of business.
