China's $45-bn economic corridor seen as Pakistan's debt trap

07 November 2016

China's $45-billion infrastructure investment in the proposed China-Pakistan Economic Corridor will not boost Pakistan's domestic economy, rather it will push Islamabad towards bankruptcy and subservience to Chinese economic and political interest, says studies by twp international think-tanks.

The studies come after the International Monetary Fund (IMF) recently said that the Beijing-funded China Pakistan Economic Corridor (CPEC) has raised Pakistan capital account deficit to seriously high levels.

The IMF has raised serious concerns saying that the project will push up Pakistan's current account deficit to 1.5 per cent of GDP next year. Medium-to-long term issues like increasing capital outflows "could arise from CPEC-related repayment obligations and profit repatriation," the IMF said in its final review of its three-year loan to the country.

The $45-billion spending and its accompanying costs will push Pakistan into a major debt trap and make Pakistanis refugees in their own land, says the reports.

The CPEC, which talks of linking Pakistan's remote interiors to the Gwadar port, actually only links China to the western seafront and serves no purpose for Pakistan and its interiors, the studies point out.

"In conclusion, the CPEC is unlikely to be a game changer for Pakistan's economy," London-based Capital Economics said in a recent report. "Given the poor prospects of reforms in the rest of the economy, we expect growth will average around 4.5 per cent over the next decade, which is little changed from its performance over the past 10 years."

Meanwhile, the Washington-based Peterson Institute of International Economics says China is taking the major risk by alienating India, which is uneasy about the project. It said India might also try to create problems for the project, but did not explain how it will do that.

"China risks upsetting India with CPEC for several reasons, the most prominent being that some infrastructure projects will run through Pakistan-controlled Kashmir, the land India claims as its own. Moreover, CPEC's upgrades of the Gwadar port have created fears the facilities may one day be used to serve the Chinese navy. For these reasons, India could try to place roadblocks in CPEC's path".

The project, however, is a bail-out for Pakistan's prime Minister Nawaz Shariff from a difficult situation last year when he faced growing criticism over power outages across the country. Nearly 80 per cent of the project funds have been allocated for electricity generation with the promise of producing a colossal $16,000 MW by 2030..

With enough power and no industries to draw power for production, the amazing turnaround that Pakistani officials promise almost every day, will be hard to realize, say the reports.

Some Pakistani experts and politicians have also raised doubts as to whether the project was worth all the money being invested.

Pakistan will bear heavy cost for machinery used in the project as most of it would be imported from overseas sources, Capital Economics said. CPEC has 8,000 Chinese workers who are likely to remit a major part of their incomes back home.

"What's more, since it will be Chinese companies running many of the new power stations, the income from selling the electricity generated will flow out of Pakistan," Oliver Jones, the researcher for Capital Economics said.

Though newspaper headlines in Pakistan proclaim the short-term benefits out of construction activity in the project, Jones is pessimistic about it.

"The short-term boost from construction is unlikely to be as much as the headline figures imply, and in any case there are big doubts the projects will be delivered on the scale that is planned," he said.

 search domain-b