Politicking may hurt CPEC, says World Bank

Published: April 12, 2016


ISLAMABAD: Political differences within Pakistan and a slowing Chinese economy have become risks to the materialisation of the $46-billion investment under China-Pakistan Economic Corridor, according to the World Bank.

A new report by the global lending organisation also projects Pakistan could miss its current fiscal targets on economic growth and budget deficit while warning Islamabad to be mindful of moderating remittances that may pose a danger to its external sector stability.

Pakistani banks insufficiently capitalised for CPEC projects

The biannual South Asia Economic Focus that the WB released on Monday cautions about risks and challenges to the economic stability and growth at a time when the government remains adamant about the implications of these issues, particularly reducing remittances.

The remittances along with steep reduction in oil prices are critical to the country’s economic growth, as the WB report also states the economy is largely driven by ‘exogenous factors’.

“The CPEC, if completed, could be a game changer for Pakistan, but is currently mired in political economy risks,” noted the WB. To ensure the corridor delivers on its potential, the government needs to address concerns and build consensus among all stakeholders.

‘CPEC to benefit both Pakistan and region’

The Washington-based agency also said a prolonged slowdown in China could diminish financial inflows under the CPEC. Pakistan expects receiving $46 billion in investment from China in its infrastructure and energy sectors in return for giving Beijing access to the Gwadar port.

The WB report said any demand-driven economic expansion as a result of CPEC’s implementation was expected to be limited in the short-run as increased investment would likely be offset by a significant increase in imports.

The WB advised Pakistan should monitor its key driver of remittances, saying public investment cuts and resulting restrictions on foreign employment in Gulf countries, particularly in construction, where many Pakistani migrants are employed, could hurt growth.

The growth in remittances is expected to be around 5.5% until fiscal 2018 – way below the 16% average growth in the previous five years.

After the Asian Development Bank and International Monetary Fund, the WB is the third global institution that has warned about implications of slowing remittances for the country’s external sector. The finance ministry, however, remains in a denial mode and insists there is no risk.

Pakistan desires to see Turkmenistan join CPEC

The WB predicted this year’s projected economic growth rate at 4.5%, which is far below the official target. The budget deficit also might increase to 4.7% of Gross Domestic Product – higher than the IMF-given target of 4.3%.

In order to unlock high-growth potential, the report advises Islamabad to maintain the momentum in reforming its business climate, access to finance and trade regime. With the election year approaching in 2018, the WB said the government might find it difficult to implement unpopular decisions, particularly on taxation and energy.

Published in The Express Tribune, April 12th, 2016.

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Reader Comments (5)

  • NHA
    Apr 12, 2016 - 11:27AM

    Serious minded professionals and scholars have been regularly alerting the Govt to the dangers faced by this once -in- century project from political actors and agitators. Mere handing it over to Planning Commission will not suffice. CPEC will have to be lead from the front.

    PM has to take a decision one final day, which is already almost there, whether he wants to go down fighting for the country and the development ( and shine and rise) or surrender to forces inimical to the project and fade away into history and take along with him PML into oblivision.

    The choice is his. Recommend

  • Imran Ahmed
    Apr 12, 2016 - 1:53PM

    We require an apolitical State Bank Governor and also a powerful bipartisan economic policy making team supported by all, or at least not hamstrung by any stakeholder. No single institution or political party should be able to hold back progress, however painful the process.Recommend

  • Khattak
    Apr 12, 2016 - 2:34PM

    CPEC should be managed by Baluchistan, why Planning Division. That would send positive signals to Chinese that the Baluch are owning the project.Recommend

  • OSD
    Apr 12, 2016 - 3:02PM

    The government is doing a phenomenal job so far.. But it needs to work on reforms to cement this progress.. Otherwise, all of this will be for nothing..Recommend

  • Ruby
    May 3, 2016 - 5:23PM

    The WB report said any demand-driven economic expansion as a result of CPEC’s implementation was expected to be limited in the short-run as increased investment would likely be offset by a significant increase in imports.

    Is it just in the short term or in long term? As Chinese goods will flood Pakistani markets more than they already are.Recommend

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