CPEC debt

The Pak Banker - - FRONT PAGE -

At the 51st An­nual Meet­ing of the Board of Gov­er­nors, Asian De­vel­op­ment Bank, Pres­i­dent Take­hiko Nakao said that Pak­istan has made progress, which is ev­i­dent from its com­ple­tion of the In­ter­na­tional Mon­e­tary Fund's (IMF) bailout pro­gramme, but chal­lenges re­main as the coun­try ma­neu­vers its way through wor­ry­ing eco­nomic in­di­ca­tors and de­plet­ing for­eign ex­change re­serves. The re­marks make sense since GDP growth will hit a 12-year high at the end of the cur­rent fis­cal year, ac­cord­ing to of­fi­cial fig­ures. From 4.1% in fis­cal year 2014, GDP growth has surged to 5.8%. The PML-N may have missed its tar­get but an im­prove­ment has been ma

How­ever, there is also a neg­a­tive side to the pic­ture. The growth has come on the back of mas­sive debt, point­ing to the need for sus­tain­able re­turns if the tra­jec­tory is to re­main pos­i­tive. Pak­istan's to­tal debt has surged to Rs22.8 tril­lion as of De­cem­ber 2017, ow­ing to loans un­der the China-Pak­istan Eco­nomic Cor­ri­dor (CPEC), bor­row­ings to main­tain for­eign re­serves and in­fra­struc­ture, and float­ing Euro and Sukuk bonds. A few weeks ago, at a Belt and Road con­fer­ence in Bei­jing, IMF Man­ag­ing Di­rec­tor Chris­tine La­garde stated that the Belt and Road Ini­tia­tive (BRI) can pro­vide in­fra­struc­ture fi­nanc­ing to coun­tries, but it should not be con­sid­ered "a free lunch". She ex­pressed con­cerns over the in­crease in global debt due to BRI, which would pose balance of pay­ment chal­lenges.

This par­tic­u­larly holds true for coun­tries that al­ready have a debt prob­lem in­clud­ing Pak­istan. What be­gan as an in­vest­ment project of $46 bil­lion has now grown to $62 bil­lion. This means that over the next 30 years the coun­try will be re­pay­ing bil­lions of dol­lars. The IMF has al­ready ex­pressed ap­pre­hen­sions and cau­tioned the govern­ment of ad­verse im­pli­ca­tions. Ac­cord­ing to ADB, con­nec­tiv­ity is im­por­tant and the Bank is will­ing to co­op­er­ate but at the same time, eco­nomic re­al­ity and fea­si­bil­ity should be con­sid­ered: "If we in­vest in bor­rowed money then we need eco­nomic re­turn. If coun­tries borrow too much with­out as­sess­ing eco­nomic vi­a­bil­ity it would cause is­sues in re­pay­ment. Ow­ing to the pres­ence of ideas like BRI, we should con­sider debt sus­tain­abil­ity is­sues thor­oughly."

Ac­cord­ing to Nakao, the level of co­op­er­a­tion be­tween Pak­istan and China re­mains strong and if con­nec­tiv­ity in the re­gion is im­prov­ing the busi­ness cli­mate, then it is a pos­i­tive fac­tor. The ADB pres­i­dent also men­tioned the trade war be­tween the US and China, say­ing if trade is in­ter­rupted it would dam­age Asian economies along with other na­tions. As things stand, trade in Asia has surged in 2017 com­pared to the pre­vi­ous year, partly due to higher prices of re­sources, rise of com­mod­ity trade and stronger growth in de­vel­oped economies, in­clud­ing the US. The ADB chief stressed that there is a great need to ad­dress the six to eight-hour daily power out­ages that plague many re­gions in Pak­istan. He re­vealed that it was dis­cussed with Fi­nance Min­is­ter Mif­tah Is­mail in Wash­ing­ton a few weeks ago.

No doubt, there is need for a stronger en­ergy pol­icy, and in this con­nec­tion, ADB's of­fer is wel­come that it is ready to pro­vide pol­i­cy­based lend­ing or bud­get sup­port in com­ing months. It may be added here that ex­perts have for some time been point­ing out that while CPEC is play­ing a cru­cial role in speed­ing up the growth process, CPEC re­lated loans are pil­ing up which could pose prob­lems of sus­tain­abil­ity in the com­ing years. This re­quires that our plan­ners should en­sure the projects un­der CPEC are com­pleted at the ear­li­est to yield max­i­mum re­sults.

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