PAKISTAN DEBT CRISIS HITS AS FINANCIAL HURDLES TO CPEC,

pakistan debt crisis  hits AS FINANCIAL HURDLES to CPEC,

A Pakistan debt crisis is a good sign for Chinese bank (exim bank ) fund is in the pipe line. And china is assured Pakistan of its support for developmental and infrastructure project  but several CPEC  initiative delayed because of changed political scenario in the Pakistan however imran khan led government  showed the soft corner towards china’s support  and china is making the Pakistan more dependent on  the loan from china .while some of the intelligence report shows that pak-china are carefully assessing the debt related issue to CPEC

The financial ration  of CPEC ?

Both pak-china not publicized their financial mechanism for funding for the CPEC project leaving room for the speculation .but the south asian  know it is a gift from china to Pakistan only a beneficiary no financial burden on the pak shoulder .but in the long term may be Pakistan is going to share the burden of CPEC.  most CPEC projects are funded by Chinese concessional loans, given mainly by China EXIM Bank and China Development Bank. These loans come with certain interest and for certain projects Pakistan may have to repay China over extended periods of time, which will likely further Pakistan’s accumulating debt .but the financial uncertainties of the USD $62-billion CPEC may have left major dents in both China and Pakistan’s ability to make the corridor a success story.

 Lack of transparency and accountability in CPEC

The main concern is lack of transparency and accountability in the belt .specially with regard to Chinese financial assistance .Pakistan is already in external debt crisis its public sector is already shutdown .and Pakistan is already given the strong grip to Chinese by importing heavy machinery and equipment from China and providing tax exemptions to Chinese companies, Chinese companies also bring labor from their country, which has affected the job prospects for Pakistani youth. In this way, Pakistan’s reliance on China is increasing, adding to its financial woes, and raises questions about its overall gains from CPEC.

Most recently, Pakistan withdrew its bid for the Diamer-Bhasha Dam to be included in CPEC following Chinese conditions seeking ownership of the project. Another issue being raised is the increasing cost of the projects and higher estimates given by China. For instance, Pakistan Railways’ Mainline-I project, for which China was supposed to cover 85 percent of the cost with Pakistan paying the rest, was delayed after it failed to get approval from Pakistani authorities. This was attributed to the USD $4 billion project cost for phase one, which was USD $627 million higher than Pakistan’s estimates.

Furthermore, Chinese focus remains overwhelmingly on CPEC projects in the eastern provinces, with Pakistan receiving 90 percent of its total 2017-18 funding mainly for three projects–the Sukkur-Multan Motorway (USD $904 million), Thakot-Havelian Motorway (USD $318.2 million), and the Orange Line Metro project (USD $359 million). Meanwhile, infrastructure projects in the western provinces are overlooked, including Hakla-Dera Ismail Khan, Basima-Khuzdar, and the Karachi-Lahore Motorway. Not only can these delays lead to a rise in project costs that burden Pakistan’s economy with additional debts but they may also exacerbate the existing perception that CPEC will benefit only certain parts of the country, flaming ethnic tensions.

Fragile condition of Pakistan financial system

Currently Pakistan capacity for debt financing is very poor . A widening trade deficit and an external debt of around USD $92 billion, of which around one sixth is contributed by CPEC loans according to some estimates, has left Pakistan in a balance of payment crisis. Pakistan’s current account deficit rose to USD $16 billion in 2017-18 and in the coming fiscal year, Pakistan is planning to borrow an additional USD $13 billion, which is 63 percent more than the previous year. With the initiation of the CPEC mid-term projects (to be completed by 2025) and long-term plan (to be completed by 2030), it is estimated that the cost of CPEC will increase to USD $100 billion. Consequently, Pakistan will likely have to repay an even larger amount to China, further worsening the Pakistani economy.

CPEC projects are likely to be delayed if the financial hurdles are not cleared. Unless there is more transparency, it is hard to predict to what extent CPEC is going to impact Pakistan’s economy and whether these infrastructure and connectivity projects will be useful for long-term economic development.

refernce:

south asia voice
foreign affairs
south asia politics