SBP governor says he is unaware of debt and equity components in $46 billion CPEC. PHOTO: AFP
The government needs to be more transparent about the details of energy and infrastructure deals worth $46 billion signed with China earlier this year, State Bank of Pakistan (SBP) Governor Ashraf Mahmood Wathra told Reuters on Friday.
The deals, called the China-Pakistan Economic Corridor (CPEC), should help shore up Pakistan’s crumbling infrastructure and reduce its electricity shortages by building more power plants. On the other hand, China would get a free trade zone in Pakistan’s Gwadar port and access to the Indian Ocean.
New Pakistani roads will also open up routes for Chinese goods into Europe and the Middle East.
But despite the apparent benefits for both parties, the details, terms and financing of many of the deals remain unclear. “I don’t know out of the $46 billion how much is debt, how much is equity and how much is in kind,” said Wathra.
Pakistan, a nation of 190 million, has frequently struggled to manage its cash flows because the government is reluctant to tax the wealthy and powerful.
In September 2013, the country faced a balance of payments crisis, with just over $4 billion in foreign reserves held by the SBP - less than a month of imports.
But since then, the State Bank’s reserves have recovered to $14.6 billion, with the help of an International Monetary Fund (IMF) programme agreed after Prime Minister Nawaz Sharif took power in 2013, a $1.5 billion gift from Saudi Arabia, an auction of telecommunications licences and the issuing of a Euro bond.
Inflation dropped 2.73% as oil prices in particular and commodity prices in general declined.
The rupee has stabilised at 105 against the US dollar, although last month the IMF said it believed the rupee was over-valued.
“Pakistan’s economy has grown 4.2% this year, a slight improvement over the last year, and the country hopes to reach 4.5 to 5.0% growth next year, said Wathra.
Yet underlying problems plaguing the economy, including daily power cuts and security problems, remain.
According to him, long term solutions lie in increasing exports and increasing Foreign Direct Investment (FDI). “Without these two strong inflows, it is very difficult to keep the economy on track,” the SBP governor added.
Foreign investment flows have been shrinking; falling by nearly a quarter this financial year compared with last year, and exporters say the energy crisis and an over-valued rupee is crippling the business.
Published in The Express Tribune, December 6th, 2015.
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