Serious propaganda has been launched against the financing mechanism of the China-Pakistan Economic Corridor (CPEC) that the debt related to CPEC would inject additional burden on Pakistan’s finances in the years to come. These concerns are expressed by the non-government elements. The government, on the other hand, unfortunately has not effectively countered them.
Launched some 32 months ago, CPEC is project of high national importance to Pakistan. The project is the part of Chinese Belt and Road Initiative (BRI) of building six economic corridors around the world and CPEC is considered as pioneer and flagship project of the BRI.
When the project was launched, there were 51 agreements signed and they were mostly related to energy and infrastructure projects and some related to institutional arrangements.
As for the package of US$ 46 billion is concerned, US$ 35 billion were earmarked for energy generation and US$ 11 billion for infrastructure development. With new projects added with the insistence of provinces, the package is now gone beyond US$ 63 billion, which is around 21 percent of the total GDP of Pakistan.
Under the first phase, which is called the Early Harvest Program (EHP) many projects are completed by now and the remaining will be completed by the end of this year. As the EHP targeted energy production, by November 2017, Pakistan has overcome electricity shortage and has been producing surplus energy. By the end of this year, 11,000 MW will be added to the national grid.
Many critics raised serious concerns about the CPEC loans burden on the finances of Pakistan as how to pay back loans and liabilities. This perception mainly comes from anti-CPEC elements, Indian, and European critics. It is a systematic propaganda to flop the CPEC and to make a dent on the Sino-Pakistani all-weather friendship. It must be understood that CPEC is a cushion to upgrade and transform Pakistan’s economy. CPEC is a grand project of prosperity and not an economic burden on Pakistan’s finances. When the economy is further expanded, debts will be further relaxed.
Out of US$ 46 billion, US$ 35 billion was allocated for energy production. This financial arrangement was based upon the on-going energy policy that we adopted in the 1990s for the Private Power Producers (IPPs) when 19 private producers (local as well as international) invested to generate electricity. The National Electric Regulatory Authority (NEPRA) adjusts power traffic with power investors to purchase electricity. This arrangement is not loans but investment. The same is adopted for CPEC energy projects. The government of Pakistan does not have to pay back US$ 35 billion to the Chinese government as loans but it is the liability of the Chinese firms to do so and pay back loans to the Chinese banks.
The remaining US$ 11 billion were concessional loans. The interest rate does not go beyond 2 percent, which means that for US$ 11 billion, Pakistan will not pay more than US$ 250 million. The long term repayment system was adopted and Pakistan has to pay back in 25 years after the completion of the projects. The EHP projects will be completed in 2018 and the repayment will be paid by 2043 on US$ 11 billion with 2 percent interest per annum. How this could be a burden on Pakistan’s fiancés and debts? Is this arrangement is offered by other donors including the World Bank and IMF?
Moreover, prudent utilisation of CPEC loans will lead to achieve high growth. Government planned debt burden to 60 percent to the GDP during 2017 and further 50 percent to the GDP in the next 15 years (2032). Pakistan borrowed some commercial loans and credit from the China Development Bank (CDB), Industrial and Commercial Bank of China (ICBC), and Asia Infrastructure Bank (AIIB) with interest rate ranging from .75 percent to 3 percent.
Pakistan still facing war on terror and during this period neither in the 1990s nor after the 9/11 any country came to assist Pakistan economically and invested here. In 2015, China came to help Pakistan to transform its economy. Today Pakistan does not face electricity shortage. In the past four years, 1800 km motorway was built. More jobs were generated. Pakistan’s trade with China increased to US$ 20 billion. Pakistan’s FDI increased to US$ 2.4 billion with China investing the half amount. A true picture of the CPEC repayments should be explained to critics and fabricated remarks should be avoided.
After 7 years Pakistan will be 25th largest economy and emerging as truly Asian Tiger economy if consistent policy is pursued vis-à-vis CPEC. Pakistanis pay great gratitude to China for building their economy in the 21st century. In short, CPEC is the backbone of Pakistan’s economy and Pakistanis are determined that the Indus River miracle will take place like the Yellow River miracle, Han River miracle, and Japanese miracle.