Minister confident Pakistan can pay back Chinese loans

Says investment will not disturb debt-to-gross domestic product ratio

APP January 31, 2017
Says investment will not disturb debt-to-gross domestic product ratio. PHOTO: AFP

NEW YORK: Planning, Development and Reform Minister Ahsan Iqbal has said that Pakistan will be able to handle repayment of Chinese soft loans to the government and businesses, which are part of more than $50 billion projects under the China-Pakistan Economic Corridor (CPEC).

“6 to 7% economic growth leaves Pakistan in a very comfortable position,” Iqbal said in an interview with The Wall Street Journal published on Monday.

“The bulk of investment coming into CPEC is through private sector investment, foreign-direct-investment, therefore it will not disturb our debt-to-gross domestic product ratio.”

Pakistan’s government debt-to-GDP level is estimated to have risen to 66.1% last year from 64.2% in 2013, according to the International Monetary Fund.

The size of the Chinese-led investment projects has increased to about $55 billion from an initial $46 billion announced in 2015, the minister told the newspaper.

“It is part of an initiative the Chinese government calls ‘One Belt, One Road’ that aims to revive trade across Central Asia and into Europe via a network of railways, ports and highways,” he added.

In November, Iqbal - who is heading the investment plans in Pakistan - said that about $11 billion of the loans have been allocated to infrastructure projects at about 2% with payback in 20 years, along with a five-year grace period.

The rest, he said, had been earmarked for generating electricity, with about 11,000 megawatts expected to be added by 2018 to end the country’s chronic power outages.

However, analysts, according to WSJ, have raised doubts about Pakistan’s ability to finance repayments and repatriations if rising economic growth is not sustained and the government fails to reverse a drop in exports.

The government is targeting a growth rate of 5.7% this year.

“The point is that the borrowing becomes a curse when it goes into non-productive sectors, so this investment is going directly into sectors which are going to increase our growth potential,” Iqbal was quoted as saying.

“CPEC financing is actually addressing the big bottlenecks of Pakistan’s economy-energy and infrastructure.”

Published in The Express Tribune, February 1st, 2017.

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curious2 | 4 years ago | Reply In most countries economic growth provides for larger tax revenues - not necessarily so in Pakistan which continue to have to borrow funds to pay for the basics.
Ahsan Malik | 4 years ago | Reply Regardless of all the popular beliefs, It's an objective question, the majority of the deals made in CPEC are quite shadowy, it feels like a rich tenant moving into a poor landlord's home paying a little advance and renovating the house according to his convenience, only intending to demand a refund latter. There is little mention of any detail as to how the infrastructure projects financed and built by Chinese to be mainly used by Chinese are to be repaid by Pakistanis when we are offering them a duty/toll-free export corridor to a tax-free port and Vice Versa in cases of imports, not to mention the huge trade deficit flood of cheaper Chinese goods will create for the Pakistani manufacturing industry. The question is, in absence of any new duty/tax/toll collection and potential decline in the established income stream, what will be the major source of revenue for Pakistan to benefit economically and pay these debts?
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