ISLAMABAD: Pakistan’s debt and other repayments on China’s “Belt and Road”initiative will peak at around $5 billion in 2022, but will be more thanoffset by transit fees charged on the new transport corridor, says thePakistan government’s chief economist.
China has pledged to invest up to $57bn in Pakistan’s rail, road and energyinfrastructure through its vast modern-day “Silk Road” network of traderoutes linking Asia with Europe and Africa.
Officials expect a huge uptick in trade between the two nations once Gwadarport is functional and work on motorways is finished allowing goods tocross the Himalayas to and from China’s western Xinjiang province.
The China-Pakistan Economic Corridor (CPEC), a flagship “Belt and Road”project, has been credited with helping revive Pakistan’s sluggish economy,but investors have raised concerns that Pakistan’s currency could comeunder severe pressure once debt repayments begin and Chinese firms starttaking profits home.
Nadeem Javaid, who advises Prime Minister Nawaz Sharif’s government andworks closely on the CPEC programme, told Reuters that such fears aremisplaced as Islamabad would earn vast fees from charging vehicles movinggoods from and to China.
Javaid said the Gwadar-Xinjiang corridor should be operational from Junenext year, and Pakistan expects up to 4 per cent of global trade to passthrough it by 2020.
“The kind of toll tax, rental fees that the Pakistani system will gain isroughly $6-$8bn a year,” Javaid, chief economist at the Planning Ministry,said in an interview. “By 2020, I expect we will get this much momentum.”
He said China has huge incentives to transport oil and other goods boundfor its western regions through Pakistan as the Gwadar-Xinjiang corridorshaves some 15,000 kilometres off other traditional routes.
It doesn’t take long to imagine the savings on the many millions of litresof fuel, he said.
Predicting future trade is, of course, an inexact science, as is predictingtoll income, and Pakistan’s ambitious targets could unravel if its improvedsecurity situation deteriorates.
Chinese officials have urged Pakistan to improve security, and Islamabadnow restricts movement of foreigners to its vast western Baluchistanprovince that will host a key transport artery.
BALANCE OF PAYMENTS RISK? Investors, too, are watching Pakistan’sballooning current account deficit, which widened by more than 160pc to$6.1bn in the nine months to March, largely due to imports of machinery forbig CPEC projects.
Javaid said debt repayments and profit repatriation from CPEC projects willbegin in 2019, totalling about $1.5-$1.9bn, and rising to $3-$3.5bn by thefollowing year.
“It would be low in the beginning, and in 2022 it will peak at around $5bn— not more than that,” he said, adding the government does not think itlikely that Pakistan will face a balance of payments crisis.
The last such crisis in 2013 saw Islamabad turn to the InternationalMonetary Fund for help.
Javaid said the CPEC should boost economic growth, which he expects to hit5.2pc in 2016-17. Exports should also pick up once CPEC power projectstotalling 7,000 megawatts come online and reduce often crippling energyshortages.
Deepening political and military ties between Pakistan and China havehelped closer financial integration, too, with Chinese companies startingto buy Pakistani firms and land.
Javaid said the two countries have also discussed using a currency swapagreement between their central banks to create a mechanism to avoid anythird currency in international transactions.
“If some mechanism is going to be finalised on that, it will work as abuffer or a cushion that’s going to basically avoid or prevent any kind ofdefault that could happen in unforeseen circumstances,” he said.
But he added: “It’s only a contingency arrangement in case something badhappens.”