CPEC projects worth $11b cannot be completed in two years: IPR

Says IMF framework restricts government from making big investments

ISLAMABAD: An independent think tank has picked out a flaw in the International Monetary Fund (IMF)-prepared macroeconomic framework, expressing fear that infrastructure projects worth $11 billion under the China Pakistan Economic Corridor (CPEC) cannot be completed in the next two years -given Pakistan’s tight fiscal space.

The latest medium-term economic framework prepared by the IMF makes no provision for a big rise in government investment in the next two years to create room for timely completion of the $11-billion infrastructure projects under the CPEC, noted Institute for Policy Reforms (IPR) in its brief fact sheet on the IMF’s recent report, written by Pakistan’s former finance minister Dr Hafiz Pasha.

Read: CPEC- a window of opportunity for Pakistan

“On one hand, the IMF welcomes the CPEC initiative, but on the other it is not ready to allow the needed fiscal space to complete the projects,” said Dr Pasha while talking to The Express Tribune.



According to the IPR report, “Either the infrastructure projects will be delayed beyond 2018 or the government will have to increase public spending budget to create fiscal space.”

The IMF has projected the government investment at 3.8% of the GDP for the current fiscal year 2015-16. Instead of showing any increase in next two years, the IMF has projected that the government investment would drop to 3.4% of the GDP in next fiscal year 2016-17 and then will slightly increase to 3.6% of the GDP in 2017-18 but still lower than current year’s level, stated the report.

The IMF also showed public investment at the lower end to bring down budget deficit to 3.5% of the GDP in 2016-17 and further down to 3% in 2017-18. The IPR noted that these numbers appeared “unrealistic”.

The next two years are very critical in terms of completion of $11-billion infrastructure projects, as Pakistan and China have planned to complete 40% of work on infrastructure projects in 2017 and the remaining in 2018.

The Ministry of Planning and Development documents corroborate that the Pakistan and China have planned to complete infrastructure projects by December 2018.

The IPR said in order to complete work on the CPEC in the next two years the government will have to convince the IMF to substantially relax the ceilings on budget deficit.

The Ministry of Finance should take up the issue with the IMF during the forthcoming review talks, scheduled for end of this month, it added.

It said that on the assumption of 40% implementation in 2016-17 and the remaining in 2017-18, the allocation for CPEC infrastructure projects will have to be close to Rs440 billion and Rs660 billion respectively in the next two years.

Based on the same pruning in allocations to on-going projects, the Public Sector Development Programme (PSDP) at the federal level will have to be larger by at least Rs350 billion in 2016-17 and by almost Rs550 billion in 2017-18.  The current size of the PSDP is Rs700 billion, which the IPR projections show that should be Rs1.25 trillion in next years.

This will require an additional jump in the level of government investment by approximately 1.2% of GDP in 2017-18 and 1.7% of GDP in 2018-19. It means that as against the IMF-desired public investment level of 3.4%, the actual investment should be 4.6% of the GDP in 2016-17 and 5.3% of the GDP in 2017-18.

Subsequently, the budget deficit should be 4.7% of the GDP in 2016-17 as against the IMF-dictated level of 3.5% of the GDP and from 3 to also 4.7% of the GDP in 2017-18.

Read: CPEC takes centre stage at K-P Assembly

The IPR noted that the tight fiscal deficit projections
for next two fiscal years
indicate that the IMF was expecting the PSDP allocations to on-going projects to be cut back drastically over the next two years or for the implementation of the vital transport infrastructure projects to be spaced out over a longer period.

Published in The Express Tribune, October 10^th, 2015.

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