pakistan economy to face severe crises over chinese loan

[Maxpane]

Pakistan economy to face severe crisis over Chinese loans
on: February 22, 2017

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ISLAMABAD: Pakistan might go through another financial crisis as the government has taken loans for eight energy projects on huge interest rate and awarded these contracts on hefty profit.

Sources said the loans were taken on "extremely hard conditions" and contracts were given to Chinese firms on almost 20 percent return profit.

They added that the repayment of these loans would commence soon after which Pakistan would have to pay the original amount and heavy markup to the Chinese companies and this would bring the country's foreign reserves under immense pressure.

The Water and Power Ministry shared financing details of the projects with the National Assembly's Standing Committee on Planning and Development. This is the first time that such financing details have been made public.

READ MORE: Pakistan external debt and liabilities increase tremendously in last 3 years
The projects are Engro Powergen Thar Coal-II, Port Qasim Power Plant, Thar Coal Power Plant, Hubco Coal Power, Thar Energy Limited, Sahiwal Coal Power, Suki Kinari Hydro and Karot Hydro. The projects, having a collective capacity of 7,680MW, will cost $12.5 billion. Of the $12.5 billion roughly $9.5 billion will be debt and the remaining will be contributed as equity by the sponsors.


The Water and Power Ministry disclosed, "$9.5 billion debt shall carry an interest rate of London Interbank Offered Rate plus 4.5 percent."

READ MORE: India afraid of Pakistan's economic stability: Swedish thinktank
"In effect, the Chinese loan shall bear an interest rate of 6.21 percent (as the current one-year LIBOR hovers around 1.71 percent). Additionally – and amazingly – the Beijing-based China Export & Credit Insurance Corporation will charge an insurance premium of 7 percent (even though the Government of Pakistan has guaranteed to purchase each and every unit of electricity that will be generated)."

The ministry also said, "The return on equity in the Sahiwal Coal Power Project "shall be 27.2 percent" and the return on equity in the 1,320MW Thar Coal Power – by Shanghai Electric Power – stands at 34.49 percent. For the record, these dollar-denominated, Government of Pakistan-guaranteed rates must be among the highest on the face of the planet-and an investor's dream come true."

READ MORE: US Journal lauds economic reforms in Pakistan
"The annual financing burden for these eight projects will be around $2 billion, plus an insurance premium of $650 million. And assuming that the entire amount of $35 billion is utilised for energy projects the annual financing burden shall go up to $5.3 billion plus an insurance premium of $2 billion (Budget 2016-17 allocated a total amount of $1.1 billion as 'mark-up on foreign debt')."

By: Abbas Shahid

 

[maximuswarrior]

Scaremongering and nothing else.

Why weren't these questions posed when Pakistan took loans from the WB, IMF or the US? We know how detrimental and stringent the payback terms are for these loans. Aren't loans from these institutions equally burdening and bad for the economy? I have even heard some "analysts" in Pakistan claim that without Western aid and loans Pakistan would not survive a single day.

Now we hear this propaganda by a few paid content writers about Chinese loans being toxic and what not.

 

[Maxpane]

Scaremongering and nothing else.

Why weren't these questions posed when Pakistan took loans from the WB, IMF or the US? We know how detrimental and stringent the payback terms are of these loans. Aren't loans from these institutions equally burdening and bad for the economy? I have even heard some "analysts" in Pakistan claim that without Western aid and loans Pakistan would not survive a single day.

Now we hear this propaganda by a few paid content writers about Chinese loans being toxic and what not.

bro i dnt know mich about ecomics i just post it so that people who knows about economy can shed some light

 

[maximuswarrior]

bro i dnt know mich about ecomics i just post it so that people who knows about economy can shed some light

Well, the answer is that these paid content writers are paid to write such garbage and sow confusion.

 

[Maxpane]

Well, the answer is that these paid content writers are paid to write such garbage and sow confusion.

so nothing serious to worry about?

 

[The SC]

"The annual financing burden for these eight projects will be around $2 billion, plus an insurance premium of $650 million. And assuming that the entire amount of $35 billion is utilised for energy projects the annual financing burden shall go up to $5.3 billion plus an insurance premium of $2 billion (Budget 2016-17 allocated a total amount of $1.1 billion as 'mark-up on foreign debt')."

Which is not the case most money will go to infrastructure and other state sponsored nuclear energy projects and dams, so the Annual burden of these projects will amount to 2.650 billion$ for a 12.5 billion$ loan designed to salivate other foreign investors..

 

[third eye]

Sources said the loans were taken on "extremely hard conditions" and contracts were given to Chinese firms on almost 20 percent return profit.

They added that the repayment of these loans would commence soon after which Pakistan would have to pay the original amount and heavy markup to the Chinese companies

In effect, the Chinese loan shall bear an interest rate of 6.21 percent (as the current one-year LIBOR hovers around 1.71 percent). Additionally – and amazingly – the Beijing-based China Export & Credit Insurance Corporation will charge an insurance premium of 7 percent (even though the Government of Pakistan has guaranteed to purchase each and every unit of electricity that will be generated)."

For the record, these dollar-denominated, Government of Pakistan-guaranteed rates must be among the highest on the face of the planet-and an investor's dream come true."

My observations are on the mark up, 20 % profit & Insurance premium .

The question I have is .. why ?

 

[mansoor raja]

so nothing serious to worry about?

No .Don't worry . We are good . These are fdi

 

[ito]

I cannot comment on the figures on the OP, but if they are true, Pakistan could be in a debt trap, and that can prove to be very bad for Pakistan's economy.

Scaremongering and nothing else.

Why weren't these questions posed when Pakistan took loans from the WB, IMF or the US? We know how detrimental and stringent the payback terms are of these loans. Aren't loans from these institutions equally burdening and bad for the economy? I have even heard some "analysts" in Pakistan claim that without Western aid and loans Pakistan would not survive a single day.

Now we hear this propaganda by a few paid content writers about Chinese loans being toxic and what not.

Interest from WB, IMF will be in the range of 2 to 3%, and Chinese are charging 6.21%. Moreover, instead of local industries benefiting from these loans, Chinese companies are getting the contracts. So in effect Chinese are giving loans and getting interests and also getting the profits out of those projects. What is Pakistan getting?

 

[NakedLunch]

Pakistan's 'liberal' journalists (mainly from the English language Press) are paid propagandists who peddle Western interests. The Obama administration claimed to have spent $100 million in the Pakistan media a few years ago. That was not the only investment made. Has anyone asked where that money went and why benefited from it? These hit pieces on CPEC are mainly written by them.

 

[mike2000 is back]

I cannot comment on the figures on the OP, but if they are true, Pakistan could be in a debt trap, and that can prove to be very bad for Pakistan's economy.



Interest from WB, IMF will be in the range of 2 to 3%, and Chinese are charging 6.21%. Moreover, instead of local industries benefiting from these loans, Chinese companies are getting the contracts. So in effect Chinese are giving loans and getting interests and also getting the profits out of those projects. What is Pakistan getting?

To be honest, Pakistan being a poor country, has no choice anyway. It's generally considered a risky country for foreign investors, due to the security and economic/investment climate situation and corruption of the country. So obviously Chinese investors will charge a higher interests for their loans considering the high risks involved by such a huge investment. I don't find anything wrong there. At least they are getting some investment.
Granted that they should manage these loans to the best of their ability given the high interests rate which they have to repay together with the lump sum of the loan itself, else they MIGHT end up worse off at the end of the day. So it all depends on how well they manage and allocate these funds in the most productive areas of their economy as well. The Jury is still out there. Only time will tell.

The most important thing in this article and something i find really commendable, is the fact that some people in the country are aware and rational enough to indulge in self criticism and looking at any loopholes and asking questions from any investments/loans even coming from a very close ally at the risk of being labelled traitors or puppets of foreign powers lol ) That's a good start, since one might have expected them to turn a blind eye on this aspect and ignore everything else in there. Once a country can self criticize/introspect irrespective of which country it affects, then that's a good start in self correction and making things right or even better in future

 

[salarsikander]

When Pakistan Get the loan IMF and WB are going to Benefit to Pakistan and Pakistan People going to Get Benefit.

But in this case is totally Different What are the Equipment the are going to Use is from china and China is going to use the Road to supply to western country and Africa to save the cast.

only Pakistan part is pay interest for the loan and Low cast Laber will work for the project.

Why China is Not transferring their Manufacturing to Pakistan at least some basic Company

I Have to Mention One more News. about sri langa.

Sri langa canceled the port contract with china and again last year again sri langa signed contract with chine because the amount which china inverted in the project they can't pay back to china.

This is for Just a message from Indian Foreign Secretary Subrahmanyam Jaishankar speaks to the Global Times during an interview in New Delhi. Photo: Li Qian/GT

But India wants more than just investment, and is in return eying the Chinese market. China is more interested in investing in India than buying Indian-produced products, complained Shaktikanta Das, head of the Department of Economic Affairs, Ministry of Finance. Bilateral trade between China and India has been hugely uneven, with China enjoying a huge surplus. Figures from China's General Administration of Customs show that Indian exports to China contracted 18 percent in 2016 compared with the previous year, contributing to the rise of its trade deficit with China from $45 billion to more than $46.5 billion.

http://www.globaltimes.cn/content/1034119.shtml

Sorry for Posting Link.

@ADMINISTRATOR

I am not interested Breaking Rules but some times i don't have choice.

Damn Pakistan is doomed for forever

 

[Tamilnadu]

If whats said in the op is true,its really bad for Pakistan.i wish its not true theough.

Pakistanies should try to look at the actual truth instead of blindly saying these are paid articles..there is nothing wrong in verifying.
As my math teacher used to say numbers dont lie....

 

[RIP Pak LAW]

There is smear campaign against CPEC in DAWN and other English news websites. From the day, CPEC project was declared in 2014, we have been seeing constant barrage of such anti-China topics in English media to spread so much negativity against it. Most of the times, these journalists doesn't know a shit about Govt to Govt deals yet every tom, dick and Harry becomes an economist with their blogs.

Its good that China is involved in most of the energy projects in next decade or so else we all know what we did with KalaBagh Dam when it comes to doing something on our own. Yes interest might be slightly higher in certain projects but at the same time we can't just sit down let our industry die because of lack of power.

 

[Dem!god]

There is no need to worry, just make sure your economy gets into better shape and keep on running uptrend. Once the economic boom starts these loans will appear to be peanuts.
Not much to worry yet, just keep your debt to gdp ratio within 5-7%.