SUMMARY of the Article “Re-profiling Chinese debt,” by Khurram Husain, Dawn, August 1st, 2024
The article “Re-profiling Chinese debt” by Khurram Husain discusses Pakistan’s attempt to renegotiate $27 billion worth of debt owed to China, Saudi Arabia, and the UAE. Finance Minister Muhammad Aurangzeb revealed this during a press conference, though he initially focused on tax burdens. His visit to China, following Prime Minister Shehbaz Sharif’s trip a month earlier, aimed to address this debt under the IMF’s requirements. The discussions are in the early stages, involving talks with the Chinese power project sponsors and financial market players, including the People’s Bank of China. The challenge lies in meeting the equity return guarantees for these sponsors amid Pakistan’s foreign exchange constraints. Aurangzeb mentioned hiring local advisers for structuring their approach and floating a Panda bond, though skepticism exists about its feasibility given Pakistan’s current financial state. The urgency is emphasized by the need to reach an agreement before the IMF staff-level agreement can be finalized. Delays could risk economic stability, with the IMF likely to show limited leniency, as indicated by directives from the US Treasury during the spring meetings. The article underscores the complexity and critical nature of these negotiations for Pakistan’s financial future.
Easy/Short SUMMARY:
The article talks about Pakistan trying to renegotiate $27 billion of debt with China, Saudi Arabia, and the UAE. Finance Minister Muhammad Aurangzeb shared this news after visiting China. The talks are just starting and involve figuring out how to handle payments to Chinese power projects. Pakistan’s financial situation makes this challenging, and they need to reach an agreement soon to get IMF support. If talks take too long, it could hurt Pakistan’s economy. The urgency is high because the IMF wants Pakistan to resolve this quickly, with limited patience for delays.
SOLUTIONS of The Problem:
Strengthening Negotiation Teams
Form specialized teams with expertise in international finance and debt restructuring to lead negotiations with Chinese, Saudi, and UAE officials, ensuring thorough and effective discussions.
Engaging Financial Advisors
Hire reputable local and international financial advisors to structure proposals, identify feasible solutions, and provide strategic guidance throughout the re-profiling process.
Implementing Transparent Communication
Maintain open and transparent communication with all stakeholders, including the public, to build trust and keep everyone informed about the progress and challenges of the debt re-profiling efforts.
Exploring Alternative Financing Options
Investigate alternative financing methods such as issuing Panda bonds, securing bilateral loans, or seeking assistance from other international financial institutions to manage immediate financial pressures.
Enhancing Economic Reforms
Accelerate the implementation of economic reforms as outlined in the IMF program, focusing on tax and energy sector improvements to demonstrate commitment to fiscal responsibility and stability.
Strengthening Diplomatic Relations
Leverage diplomatic channels to strengthen relationships with China, Saudi Arabia, and the UAE, emphasizing mutual benefits and long-term cooperation in resolving debt issues.
Promoting Investment in Key Sectors
Encourage investment in critical sectors such as energy, infrastructure, and technology to boost economic growth, create jobs, and enhance Pakistan’s ability to meet its financial obligations.
Implementing Fiscal Discipline
Adopt stringent fiscal discipline measures to manage expenditures, reduce deficits, and ensure sustainable economic management, thereby improving creditworthiness and investor confidence.
Developing Contingency Plans
Prepare contingency plans to address potential setbacks in negotiations, ensuring that alternative strategies are in place to mitigate risks and maintain economic stability.
Enhancing Public-Private Partnerships
Promote public-private partnerships to attract investment, share risks, and leverage private sector expertise in managing and developing critical infrastructure projects.
IMPORTANT Facts and Figures Given in the Article:
- Pakistan seeks to re-profile $27 billion in debt from China, Saudi Arabia, and the UAE.
- The discussions are a result of IMF requirements tied to Pakistan’s economic reform agenda.
- Negotiations involve the Chinese power project sponsors and financial institutions like the People’s Bank of China.
- The urgency is due to the need for IMF staff-level agreement finalization.
- Delays in negotiations could risk Pakistan’s economic stability.
- The US Treasury has advised the IMF to show limited leniency if countries do not take necessary steps.
MCQs from the Article:
1. How much debt is Pakistan seeking to re-profile?
A. $10 billion
B. $27 billion
C. $50 billion
D. $100 billion
2. Which countries are involved in Pakistan’s debt re-profiling efforts?
A. China, India, UAE
B. China, Saudi Arabia, UAE
C. Saudi Arabia, UAE, USA
D. China, USA, UK
3. What is the main challenge in the negotiations with Chinese power project sponsors?
A. Construction delays
B. Equity return guarantees
C. Political disagreements
D. Environmental concerns
4. What did Finance Minister Aurangzeb mention about hiring to aid the debt re-profiling process?
A. Local contractors
B. Local advisers
C. Foreign diplomats
D. International investors
5. Why is there urgency in reaching an agreement on debt re-profiling?
A. Upcoming elections
B. IMF staff-level agreement finalization
C. Trade agreements with the US
D. Currency stabilization efforts
VOCABULARY:
- Re-profiling (نئے سرے سے پروفائل کرنا): Adjusting the terms of debt to make it more manageable.
- Demurred (اعتراض کیا): Show reluctance or hesitation.
- Disguised (چھپایا): Made to seem different to conceal the true nature.
- Equity (ایکویٹی): Ownership interest in an asset.
- FX (کرنسی کا تبادلہ): Foreign exchange.
- Panda bond (پانڈا بانڈ): Bonds issued in China by foreign entities.
- Leniency (نرمی): Showing mercy or tolerance.
- Contingency (ہنگامی صورتحال): A future event that is possible but cannot be predicted with certainty.
- Bilateral (دو طرفہ): Involving two parties, usually countries.
- Fiscal (مالیاتی): Related to government revenue, especially taxes.
- Debt relief (قرض کی رعایت): Reduction or forgiveness of debt.
- Stakeholders (شراکت دار): Individuals or groups with an interest in a decision or outcome.
- Skepticism (شک): Doubt as to the truth of something.
- Diplomatic (سفارتی): Relating to diplomacy or international relations.
- Revenue (آمدنی): Income generated from normal business operations.
- Transparency (شفافیت): Openness and clarity in communication.
- Strategic (حکمت عملی): Related to long-term planning to achieve goals.
- Restructure (دوبارہ ترتیب دینا): Organize differently to improve efficiency.
- Sustainability (پائیداری): Ability to be maintained over the long term.
- Deficit (خسارہ): The amount by which something, especially money, is too small.
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dawn.com
Policy games we play
Ali Tauqeer Sheikh
WHY do governments fail to do what they say they want to do? Any student of public policy will testify that policy is not what they say they will do but what they actually do. It would hardly be an exaggeration to argue that most social sector policies are aspirational or declaratory; there’s little serious intent to implement them.
Hiding behind a tight fiscal space has become very convenient for successive governments. Demands to reduce the bloated size of government and expenditures are deflected by tying the issue to governance and institutional reforms — for which little or no appetite is visible. For many governance gurus, reform means renaming ministries, moving them from one to the other administrative division, occasionally merging them, or relegating them to the provinces. The absence of political stability and financial resources is typically invoked to delay and scuttle institutional reforms. These are indeed ‘good’ reasons, but perhaps not the ‘real’ reasons, or at least not the primary ones for the failure to implement declared policies.
Pakistan’s policies can easily be divided into two groups: one, declaratory policies to please the public or international community, and second, a group of policies for which budgetary allocations are made — and released — to systematically remove barriers to their implementation. Social progress or human security have for decades remained on our declaratory policy list, and seldom on our priority implementation list.
Most social sector policies in Pakistan will have long, unprioritised wish-lists, and lack in action plans, timelines, and costing. We can add to this the weak ownership of key stakeholders and its linkages with other sectors and different tiers of governance. Climate-related policies in the country are no exception to this general rule.
The national policy ecosystem hardly aligns with high-profile climate targets.
Climate-resilient and low-carbon development is proclaimed policy, awaiting mainstreaming in the policy landscape. My recent research gave me the opportunity to look at 60 policies governing sectors critical to climate adaptation and mitigation. I have learned that Pakistan has a rich inventory of sectoral policies, but that they are rarely aligned with national and international climate commitments. Sectoral policies set national sectoral objectives and determine the direction for investments. They often recommend specific projects and programmes. With some variations, provincial policies are typically aligned with national policies or priorities.
Some national policies have not been revised since the 18th Amendment was approved in 2010. Likewise, on subjects that are now firmly in the provincial realm, not all provinces have developed their sectoral policies. Countless draft policies are languishing on departmental websites, waiting for a push that does not always come from the federal government.
In fact, sometimes the federal government itself has hindered the development or approval of provincial policies, arguing that in the presence of national policies, the provinces only need action or implementation plans. Now with the provinces being ruled by different political parties, the response to federal policy asks are not uniform.
Of the 60 policies reviewed, only one — the National Energy Efficiency and Conservation Policy (2023) and its action plan (2023-30) — is clearly aligned with the Nationally Determined Contributions (NDCs), a commitment Pakistan has communicated to the climate change secretariat. Additionally, only three federal policies have referred to the National Climate Change Policy (NCCP): the national water, forest, and food security policies (2018, 2012, 2015). Ironically, all these policies are dated as they were developed before the revised NCCP and NDC were approved in 2021.
Hence, the national policy ecosystem offers a barren landscape of alignment with high-profile climate targets. These are central to Pakistan’s global adaptation and carbon emissions reduction commitments. This is not a good omen for a country that seeks to access international climate finance and investments.
In Pakistan, climate-proofing across policies varies by sector. Of the 15 policies highlighted in the latest version of the Pakistan Economic Survey (2023-2024), six deal with energy issues, but most of them were approved before the NCCP and NDC were released in 2021. These include the LNG Policy 2011, the National Power Policy 2015, the Power Generation Policy 2015, the Alternative & Renewable Energy Policy 2019, and the National Electric Vehicle Policy 2019. Ironically, another four policies that were approved subsequently have no reference to Pakistan’s carbon emission targets: the National Electricity Policy 2021, the National Hazardous Waste Management Policy (2022), the Indicative Generation Capacity Expansion Plan 2021-30 (2023), and the National Clean Air Policy (2023). A closer review shows that although some of these policies have acknowledged Pakistan’s climate vulnerabilities, almost all have failed to address direct and indirect sector-specific climate risks and threats.
My handpicked policies from various sectors such as energy, transport, agriculture, and industry, that were released after the approval of the updated NDC in 2021, ironically lacked specific sections on climate adaptation or mitigation measures as outlined in the NDC. Furthermore, these policies did not explore potential sources for innovative financing, unlike their counterparts in other countries.
This reflection should not be construed to imply a comment on the quality of the country’s sectoral policies, but only to underline the lacuna on how the policy environment in Pakistan is fragmented.
We have all seen how weak institutional frameworks hinder the formulation and effective implementation of policies. The main obstacles to effective public policy development in Pakistan include lack of viable policymaking mechanisms, governance deficits, elite capture, and the absence of public input and oversight. This has led to challenges in coordination and consistency across different levels of government. These elements contribute to a dismal track record in public policy formulation and implementation.
Perhaps the most serious public policy challenge in Pakistan is the system’s inability to act and correct itself. Presently, it is willing to go to any lengths to avoid purposeful action and reform. One of the most important contributions of the SDGs is that they have provided a guide on how to think about the linkages between various sectors — they are not simply a fancy and colourful list of targets and indicators for various sectors. Clearly, Pakistan needs to upend its policy environment.
The writer is an Islamabad-based climate change and sustainable development expert.
Published in Dawn, August 1st, 2024