CPEC debt burden: What is the actual debt and repayment schedule?
*ISLAMABAD - The Planning Commission of Pakistan has rejected the local and the international media and institutions agenda over the CPEC debt burden on Pakistan.*
*PC issued a clarification to address the concerns of the global community about Pakistan’s CPEC-related Chinese debts.*
The planning commission statement said: “CPEC is not imposing any immediate burden with respect to loans repayment and energy sector outflows” it said, arguing all debt related outflows will be outweighed by the resultant benefits of the investments to the Pakistan economy. The statement, however, did not give any figures on the size of the outflows or their timeline.
“The present government, with mutual consultation of Government of China is broadening the base and expediting pace of CPEC, within the broad parameters of the already approved CPEC framework”. A mechanism is being developed to include third party participation in CPEC, it added.
The commission reiterated that CPEC was a “flagship” project and most active project of Belt and Road Initiative where 22 projects worth a total of $28 billion have been actualized over the past four years. “The project could not be compared with Chinese overseas investment in Sri Lanka or Malaysia as frameworks and financial modes of CPEC are altogether different in nature” the statement continued.
CPEC finances are divided in government to government loans, investment and grants. Infrastructure sector is being developed through interest free or government concessional loans, the commission clarified. Gwadar Port is grant-based investment which means the Government of Pakistan does not have to pay back the invested amount for the development of the port.
Energy projects are being executed under Independent Power Producers (IPPs) mode and finances are mainly taken by the private companies from China Development Bank and China Exim Bank against their own balance sheets, therefore, any debt would be borne by the Chinese investors instead of any obligation on part of the Pakistani government.
Pakistan has opted for Chinese investment under CPEC due to the favorable financing arrangements, it continued. “China stepped forward to support Pakistan’s development at a time when foreign investment had dried up, and economic activities were being crippled by energy shortages and infrastructure gaps.”
The statement described CPEC as “an engine for economic growth and is expected to increase Pakistan’s GDP growth by 2 to 3pc. CPEC has also facilitated in overcoming crucial energy, transport infrastructure and supply chain bottlenecks.”
Moreover, the sources at the commission said that the outflows under China-Pakistan Economic Corridor (CPEC) will begin in 2021 and peak over the next three years without creating a debt trap.
A planning commission official Thursday said the CPEC was rather being expanded and its pace expedited.
He said the debt repayments will start in 2021 with about $300-400 million annually and gradually peak to about $3.5 billion by fiscal year 2024-25 before tapering off with total repayments to be completed in 25 years.