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CPEC – ECONOMIC FUTURE OF PAKISTAN

CPEC – ECONOMIC FUTURE OF PAKISTAN

By Ayesha Nayyer

One of the common reservations expressed about CPEC is that it lacks transparency and non‐availability of complete information. The terms and conditions of financing at which the Chinese companies are participating in  these projects are not  fully known and the likely  future  financing  burden  on  Pakistan’s  balance  of  payments  is  not  obvious.  This write-up attempts  to address some of these issues  to  the extent that  the projects have been  planned,  agreed  upon,  finalized  and  implementation  is  under  way.  Only approximately  half  of  $  45  billion  committed  originally  for  CPEC  would  be  utilized  for these projects. Pakistan’s liability is therefore at present limited to this $ 23‐25 billion only. Many other projects are at feasibility stage, discussion or negotiation stage between the two governments or on hold. No amount has either been committed or disbursed for these projects and the liability of   Pakistan has not yet arisen. It must be kept in mind that the planning of CPEC follows four stages and firm information would flow only when we reach that stage. These stages are:

  1. Early Harvest  2015‐2019

Most  of  the  projects  relate  to  Energy  sector  which  are already completed or expected to be completed by 2019 adding  approximately 7000 MW  electricity  to  national  grid  and  thus  easing  the  energy  shortages  and  load shedding that had crippled the industry and exports

  1. Short term  projects    up  to  2022

It mainly consists of Roads, Gwadar Development, Optic fiber network and the Hydel, coal mining and power projects

  1. Medium projects up to 2025 Railways and Industrial zones
  2. Long term projects up to 2030 Completion of Industrial zones, Agriculture, Tourism etc.

The confusion arises when some of the commentators mix up industrial zones that would spill over in the long term and on which very little planning or conceptual work has been done with the energy projects that would add 13180 MW to the national grid by 2022 and are at various stages of execution. A more disaggregated approach would help remove this confusion. But the fact that the industrial zones are still at their initial stage provides an opportunity for our private sector businesses to take active part in the design, policy framework, institutional arrangements , incentive structure to ensure a level playing field for all investors—domestic and foreign (Chinese or non‐Chinese) . Rather than remaining by standers, skeptics and critics at various fora the business community should become a stakeholder in this process.

One must also be cautious in not pinning and propagating exaggerated expectations from CPEC. Over a period of 15 years the annual average investment under CPEC would amount to $ 3 billion only or 6% of annual investment budget of the country. Therefore those who claim that it would be a game changer for Pakistani economy are making too inflated and unrealistic claims and setting themselves up for failure. At the same time the detractors and critics who propound the theory that Pakistan would be caught in the Chinese deb trap and cede its territory i.e. Gwadar and sovereignty are also sadly mistaken. The oft quoted example of Sri Lankan port Hambantotta is totally inapplicable even in the larger context of the Sri Lankan economy. Neither of these prophecies is likely to materialize.

According to the IMF the peak outflows  on  account  of  CPEC  debt  servicing,  profit  and  dividend  repatriation  and increased imports would reach $ 3.5 ‐4‐5 billion in 2024/25 and gradually declining in the long run. Export revenues in 2024 should rise to $ 40 billion and this additional amount arising  from  the  CPEC  related  outflows    can  be  absorbed  without much  stress  on  the balance  of  payments  provided  we  continue  to  ensure  that  exports  grow  at  least 10 percent annually( In  the last nine  months since  the ease in energy shortages ,exports have grown at 12 percent ) .

Finally, what is going to be the likely outcome of CPEC very much depends upon our collective response capacity i.e. the Federal, provincial and localgovernments, the private sector, the media and the civil society all working together in unison and collaboratively. If that happens, the benefits to Pakistani economy and society particularly Balochistan and Southern KP are likely to exceed the costs. But if we continue with the Business as usual mode where bickering,  blame game, point scoring, narrow parochial and personal considerations, red tape, hesitation and delays in solving problems and removing bottlenecks persist  then we would certainly  find ourselves entrapped in heavy financial burden. The choice is entirely ours and not that of our Chinese partners.

The writer is Islamabad based CSP officer and works in Prime Minister’s office.

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