IMF warns of looming CPEC bill

[Devil Soul]

IMF warns of looming CPEC bill
KHURRAM HUSAIN — UPDATED ABOUT 5 HOURS AGO
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GROWING Chinese investments in Pakistan have the potential to lift the economy’s potential output, but the repayment obligations that come with this investment will be serious, warns the IMF in its latest and final review of the just concluded programme.

“During the investment phase, as the ‘early harvest’ projects proceed, Pakistan will experience a surge in FDI and other external funding inflows,” says the Fund in a short evaluation of the impact of CPEC related investments on Pakistan. However, the import requirements of these projects “will likely offset a significant share of these inflows, such that the current account deficit would widen” within manageable levels during these years.

The report estimates that CPEC related imports could reach 11 per cent of total projected imports by 2020, equal to just over $5.7 billion, while inflows under the corridor will touch 2.2pc of projected GDP in that year. Gross external financing needs of the country will jump almost 60pc by then, from a projected $11bn for the current fiscal year, to $17.5bn in 2020.

Pakistan will see $27.8bn in “early harvest” projects under CPEC in the next few years, with the remaining $16bn coming over a longer timeline stretching out to 2030.

“Pakistan will need to manage increasing CPEC-related outflows,” warns the Fund, once the Chinese investors begin repatriating profits, adding that the amounts involved “could add up to a significant level given the magnitude of the FDI”.

Outflows will also come in the form of repayment obligations on the loans taken from Chinese banks for these projects, which are expected to rise after 2021. Both of these, repayments and profit repatriation, “could reach about 0.4 per cent of GDP per year over the longer run”.

The Fund acknowledges that CPEC related growth could cover these payments over the longer term, but warns that this is not guaranteed.

“Reaping the full potential benefits of CPEC will require forceful pro-growth and export-supporting reforms” the report says, citing improved business climate, governance and security as necessary preconditions to enable CPEC investments to generate the resources required to cover their own associated outflows. In addition, “allowing greater downward exchange rate flexibility” will also be necessary.

The matter of rising CPEC related outflows was discussed between the Fund staff and the government during the discussions prior to the review. The government told the Fund that “additional Chinese investment over the longer term, building on CPEC as a platform, could also help cover the projected CPEC related outflows,” according to the report.

For the Fund, CPEC outflows are one of the medium to long term risks facing Pakistan’s economy. It calls for “sound project evaluation and prioritisation mechanisms based on effective cost-benefit analysis and realistic forecasts of macroeconomic and financing conditions” to help mitigate the risk.

It points out “a need to ensure transparency and accountability in project management and monitoring”, pointing specifically at the power purchase agreements being signed with Chinese IPPs, calling on the government to ensure that the cost of power purchase “remains favourable” for the distribution companies and consumers.

Published in Dawn October 17th, 2016

 

[ali_raza]

pml.n have made bad choices for investors.they just did it for short turm but in longer run we will have to pay.when they will not be here.they would be enjoying with there billions looted through comitions and corruption in these projects.and let the public rot

 

[sparten]

Tell me @ali_raza did you actually read the article. Since it paints a very different story to the headline. It simply points out the actions that need to be taken to implement CPEC.

 

[Talwar e Pakistan]

pml.n have made bad choices for investors.they just did it for short turm but in longer run we will have to pay.when they will not be here.they would be enjoying with there billions looted through comitions and corruption in these projects.and let the public rot

Please read the article before you speak about it.

 

[ali_raza]

Please read the article before you speak about it.

i did.and i m very confident about what i say

 

[Bharat Muslim]

IMF warns of looming CPEC bill
KHURRAM HUSAIN — UPDATED ABOUT 5 HOURS AGO
WHATSAPP
133 COMMENTS
PRINT
GROWING Chinese investments in Pakistan have the potential to lift the economy’s potential output, but the repayment obligations that come with this investment will be serious, warns the IMF in its latest and final review of the just concluded programme.

“During the investment phase, as the ‘early harvest’ projects proceed, Pakistan will experience a surge in FDI and other external funding inflows,” says the Fund in a short evaluation of the impact of CPEC related investments on Pakistan. However, the import requirements of these projects “will likely offset a significant share of these inflows, such that the current account deficit would widen” within manageable levels during these years.

The report estimates that CPEC related imports could reach 11 per cent of total projected imports by 2020, equal to just over $5.7 billion, while inflows under the corridor will touch 2.2pc of projected GDP in that year. Gross external financing needs of the country will jump almost 60pc by then, from a projected $11bn for the current fiscal year, to $17.5bn in 2020.

Pakistan will see $27.8bn in “early harvest” projects under CPEC in the next few years, with the remaining $16bn coming over a longer timeline stretching out to 2030.

“Pakistan will need to manage increasing CPEC-related outflows,” warns the Fund, once the Chinese investors begin repatriating profits, adding that the amounts involved “could add up to a significant level given the magnitude of the FDI”.

Outflows will also come in the form of repayment obligations on the loans taken from Chinese banks for these projects, which are expected to rise after 2021. Both of these, repayments and profit repatriation, “could reach about 0.4 per cent of GDP per year over the longer run”.

The Fund acknowledges that CPEC related growth could cover these payments over the longer term, but warns that this is not guaranteed.

“Reaping the full potential benefits of CPEC will require forceful pro-growth and export-supporting reforms” the report says, citing improved business climate, governance and security as necessary preconditions to enable CPEC investments to generate the resources required to cover their own associated outflows. In addition, “allowing greater downward exchange rate flexibility” will also be necessary.

The matter of rising CPEC related outflows was discussed between the Fund staff and the government during the discussions prior to the review. The government told the Fund that “additional Chinese investment over the longer term, building on CPEC as a platform, could also help cover the projected CPEC related outflows,” according to the report.

For the Fund, CPEC outflows are one of the medium to long term risks facing Pakistan’s economy. It calls for “sound project evaluation and prioritisation mechanisms based on effective cost-benefit analysis and realistic forecasts of macroeconomic and financing conditions” to help mitigate the risk.

It points out “a need to ensure transparency and accountability in project management and monitoring”, pointing specifically at the power purchase agreements being signed with Chinese IPPs, calling on the government to ensure that the cost of power purchase “remains favourable” for the distribution companies and consumers.

Published in Dawn October 17th, 2016

@somebozo @Kaptaan

 

[MandarK]

There is no warning just a suggestion. I guess Dawn used the term "warning" to get more readers

Reaping the full potential benefits of CPEC will require forceful pro-growth and export-supporting reforms

This is the key.

 

[marj666]

i did.and i m very confident about what i say

then try to read all the words

Transparency and professionalism should be our top priority

 

[lutfishah]

As usual stories to put people in doubt. The reality is that Pakistan will remain geographically where it is now as well as China and China or Pakistan will not put them selves in trouble of any sort which will effect CPEC. The propaganda against Pakistan is on the Highest and the global powers will try to target China. So carry on PMLN. Keep building Pakistan and the fruit will be ready in next 3-5 years.

 

[RazorMC]

Loans always carry a heavy repayment issue whether from IMF, WorldBank or China.
Sooner or later they'll become a burden for the economy unless managed well.

 

[Sliver]

basically what the article says:
"you took a loan to start a project - your debt obligation will increase because of the loan" - well yeah, thanks - it will also increase the income and hopefully by a much much bigger margin than the debt obligation.

for comparison:
Pakistani government will be financed by concessionary loans, with composite interest rates of 1.6%,[17] after Pakistan successfully lobbied the Chinese government to reduce interest rates from an initial 3%.[18] The concessional loans are subsidised by the government of China, and are to be dispersed by the Exim Bank of China and the China Development Bank. For comparison, loans for previous Pakistani infrastructure projects financed by the World Bank carried an interest rate between 5% and 8.5%,[19] while interest rates on market loans approach 12%.

 

[Cyberian]

Good article, incorrect headline.

 

[Alternative]

Good article, incorrect headline.

All the threads on CPEC, don't to seem include to one important factor, that is, the transit fees on Chinese Oil and Gas Pipelines, and container traffic.
Originally Chinese came up with the "Corridor" proposal, that is, Pipeline, Pipeline, Motorways, Railways, Road, Gawader Port, etc... Nawaz Government wanted more; Power generations projects, orange train, industrial parks etc.
The Cost of loans (interest rate) for "Corridor" is from zero percent (Gawader Port) to 1.6% (if not 1%).

As I mentioned in another thread, even if 10-15% of China's total trade passes through this Corridor, Pakistan will be netting more than twice than Pakistan will be paying in repayment of loans and interest thereon on annual basis.

Potential of CPEC is huge; As I mention in another thread,
If you look at the map of region, you will notice that CPEC provide the shortest possible route to Russia to hot waters of Arabian Sea. Moreover, if India wanted to send a shipment to Russia, the shortest possible route in term of Cost and Time, is of course, through CPEC.
I will not be surprised that Russia will be a part in near future.
Iran wants to be a part of CPEC: Oil and Gas can be pumped through easily and efficiently to huge market of China.
These will result in huge transit fees, a steady source of revenue in foreign exchange for Pakistan.

 

[Hakikat ve Hikmet]

All the threads on CPEC, don't to seem include to one important factor, that is, the transit fees on Chinese Oil and Gas Pipelines, and container traffic.
Originally Chinese came up with the "Corridor" proposal, that is, Pipeline, Pipeline, Motorways, Railways, Road, Gawader Port, etc... Nawaz Government wanted more; Power generations projects, orange train, industrial parks etc.
The Cost of loans (interest rate) for "Corridor" is from zero percent (Gawader Port) to 1.6% (if not 1%).

As I mentioned in another thread, even if 10-15% of China's total trade passes through this Corridor, Pakistan will be netting more than twice than Pakistan will be paying in repayment of loans and interest thereon on annual basis.

Potential of CPEC is huge; As I mention in another thread,
If you look at the map of region, you will notice that CPEC provide the shortest possible route to Russia to hot waters of Arabian Sea. Moreover, if India wanted to send a shipment to Russia, the shortest possible route in term of Cost and Time, is of course, through CPEC.
I will not be surprised that Russia will be a part in near future.
Iran wants to be a part of CPEC: Oil and Gas can be pumped through easily and efficiently to huge market of China.
These will result in huge transit fees, a steady source of revenue in foreign exchange for Pakistan.

No pain no gain. According to a Hadis-I Sherif 90% of Bereket is in business/trade etc. CPEC will indeed be a game changer for Pak inshaAllah. And, they know it. But, they won't be able to do anything other than sending Hanuman. Whoever remains under IMF ( I'm fired) is destined to be doomed. Hence, Turkey's first aim was to kick IMF out...

 

[Alternative]

No pain no gain. According to a Hadis-I Sherif 90% of Bereket is in business/trade etc. CPEC will indeed be a game changer for Pak inshaAllah. And, they know it. But, they won't be able to do anything other than sending Hanuman. Whoever remains under IMF ( I'm fired) is destined to be doomed. Hence, Turkey's first aim was to kick IMF out...

CPEC, itself will generate generate excellent revenue streams for Pakistani State through transit fees. Billions of dollars worth.

Nest question will be, how come it will affect the Pakistan Industry, (to which you are eluding to)?
-- Power generation will have a very positive effect.
-- Infrastructure situation is already not bad in Pakistan: A container customs cleared from Karachi takes about 3 to 4 days to reach Islamabad in North, CPEC will not significantly improve that: There are already a number of Industrial Parks in Pakistan; When Nawaz Government started building motorways, there was lots of talk of industrial cities, textile cities etc. No significant thing happened. Because of two things;
-- Law and Order
-- Inept and corrupt leadership, toeing different line and agendas.
We all know that a country has to be stable, peaceful in order to progress and prosperous. 100% of our problems are due to our leaders, both civilians and military.