But you see, it is not that simple. For dreams to morph into reality, Pakistan has a long way to go. I am not sure the Pakistani leadership understands the obligations that come with these kinds of deals.
From what has been reported till now, these are just Memorandums of Understanding (MoUs) rather than contracts. MoUs are only an undertaking that the parties agree to take certain steps. How the proposed steps would materialise in the future is another story altogether. Pakistan’s governance halls are littered with these kinds of MOUs signed with other countries, but nothing came of them. To say the least, it will depend upon the demonstrated competency and capability of Pakistani administrative and governance machinery to bring these MoUs to fruition. Pakistan’s past record of meeting such demands, however, is unsatisfactory.
Pakistan’s current and pressing economic problems are concentrated in day-to-day management rather than the long term and these give a rather complex headache than the proposed Saudi investments. If it were not for emergency Chinese and Saudi assistance, the forex reserves would have dried out. Similarly, there’s a huge gap of almost Rs2 trillion between government income and its expenditures, which is being increasingly filled by taking recourse to short-term loans. The Saudi investment will only come in trickles, and not in one go. Its premier project, the oil refinery at Gwadar, will take years to build. Thus, it will be a long time before Pakistan’s economy can reap its benefits. Plus, it will do nothing to address the serious structural deficiencies of Pakistan’s economy. What will Pakistan do till then because till now, no government (past or present) has been able to present any serious roadmap for addressing these issues.
Investors invest because they expect healthy, sizeable returns to their investments. In Pakistan, given the uncertainty and a lacklustre record, investors usually require a guarantee from the government in terms of guaranteed returns
Let us also take the bold step of acknowledging that foreign investments are no free lunch, be it the Saudi or Chinese under the CPEC. Something has to give, in return. The return can either be financial or non-financial. In both forms, Pakistan’s record is nothing to cheer about. Investors invest because they expect healthy, sizeable returns to their investments. In Pakistan, given the uncertainty and a lacklustre record, investors usually require a guarantee from the government in terms of guaranteed returns. Such guarantees are the norm rather than an exception here, as the case of CPEC guarantees amply demonstrates. Expect Saudi investors to ask for a similar guarantee. This was clearly stated by the Saudi foreign minister, when he replied to a question that this is not charity but investment! Pakistani side seems to have missed his message completely (thinking that it was only meant for the journalist), also meant to convey that if we are investing, we also expect some return.
Problem is that Pakistan’s government is already having a tortuous time meeting the former guarantees. If reports are to be believed, payments to Chinese investors in some CPEC projects are already behind schedule, leading them to protest and contact the Chinese government. Back in 2013, when CPEC agreements were being signed with gusto, the Pakistani government had pledged a Rs200 billion fund specifically for paying back Chinese investors. Till this day, the said fund has not been set up. Rather, it has become a football between the finance ministry and other departments. The reason is simple: there are no fiscal resources for such a fund. Hence, if Saudi investors or government is to ask for such guarantees, we will only be taking upon bigger liabilities than we already have.
Regarding non-financial liabilities, Pakistan is no alien to such demands, and in fact its record in this case is outstanding. But this outstanding record comes with a terrible price tag. In the aftermath of 9/11, dollars did flow into our coffers, but the non-financial cost was more than 65,000 Pakistani lives. For the $30 billion or so, Pakistan ended up enduring a loss of more than $130 billion. Expect the Saudi side to put up similar demands. In case you missed it, one has already been met: the presence of Pakistan’s ex-army chief in Saudi Arabia, leading a force against terrorism. There is already a cost: strained relations with Iran, with whom Saudi Arabia shares an increasingly acrimonious relation. On the day that the prince was to land in Pakistan, the Iranian leadership openly blamed Pakistan for sheltering terrorists who killed 28 Iranian servicemen, vowing revenge for these killings. No marks, therefore, for guessing the final outcome of this latest alignment with Saudi Arabia. In case there is any doubt, please revisit the SEATO, CENTO and the Afghan Jihad episodes to understand what lies ahead for Pakistan.
Finally, Pakistan would need to provide the required infrastructure that complements such large scale investments. The proposed oil refinery in Gwadar, for example, would need complementing infrastructure in the form of roads and electricity provision. There is not a single electricity producing unit in Gwadar and at present its electricity needs are being met by importing Iranian electricity. If Iran refuses to provide electricity, its lights out in Gwadar. The question, again, is: where will the funds come from to build and operate such an infrastructure?
I want to conclude by clarifying that the Saudi investment is indeed a very welcome omen for Pakistan, which needs it desperately. My only question in this regard is that does the Pakistani leadership understand the obligations that come with these kinds of deals? Can they fulfil the demands and expectations of the investors? Already, the Chinese investors of the CPEC are lined up to collect their repayments in the face of empty coffers and an economy weighed down by a debilitating debt burden. If the proposed MoUs are centred on a guaranteed rate of return (which is a very realistic possibility), where will the government find the resources to pay the investors back?
The present government has embarked upon many initiatives that come under the ambit of welfare statism (universal health insurance, Madina model welfare state), implying heavy state-led expenditures in the coming future. For an economy that will collapse if not for short-term borrowing, where will the resources for welfare statism and investor payback come from? To me, this is all reminiscent of what’s been going on historically with Pakistan’s economy: an infusion of money comes about, there is a temporary surge in growth on back of this infusion, but then the steam gradually runs out, and we are back to square one.
Just saying, you know, that when push comes to shove, would Pakistan be able to handle it? Think twice before jumping up and down with elation.