The Chief Economist of Pakistan Government, Dr. Nadeem Javaid, believes that CPEC debt payments will peak to $5 billion in 2022. The startling amount can become a massive drain on the economy if the projected growth numbers don’t meet actual growth.
In an exclusive report by Reuters, the Chief Economist of Pakistan has been quoted as:
“It would be low in the beginning, and in 2022 it will peak at around $5 billion – not more than that.”
China’s Growing Investment in Pakistan
Infrastructure improvement in Pakistan is an important key for the CPEC to be successful. The Chinese government has pledged to invest up $57 billion in infrastructure development. These include projects related to Pakistan Railway, Highway and Transportation infrastructure, and Energy Infrastructure. The long term aim to replicate a modern ‘Silk Road‘ which will help China move its goods quickly has been the main motivation behind the upsurge in the investment.
CPEC debt repayments will, however, severely test the sustainability of Pakistani economy. The investors are already raising questions about Pakistan’s currency when debt repayments begin and Chinese firms start taking profits home.
Long Term Financial Stability
Nadeem Javaid, who is the Financial Advisor to the Prime Minister of Pakistan Mian Nawaz Sharif in his capacity of the Chief Economist explained that CPEC is aiming towards building long-term financial stability instead of short-term financial fixes. Islamabad will be in a position to charge high fees and have a sustainable revenue model to offset debt financing by 2022.
According to initial estimates, 4% of the global trade is set to go through the CPEC corridor. The revenue potential of moving 4% of the global world trade is such that Pakistani economy can bear offloading up to $5 billion in terms of debt repayments.
Nadeem claimed:
“The kind of toll tax, rental fees that the Pakistani system will gain is roughly $6-$8 billion a year. By 2020, I expect we will get this much momentum.”
Balance of Payments, a Risky Game?
The Balance of Payment has seen the current deficit balloon up to $6.1 billion from June 2016 to Mar 2017. The critical component of increasing deficit is import of heavy machinery required for setting up infrastructure projects related to CPEC.
Nadeem tells us that such fears are temporary as situation will drastically improve once CPEC projects start bearing fruit. He concluded:
“Government does not think it likely that Pakistan will face a balance of payments crisis.”
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