| Welcome to Global Village Space

Thursday, February 15, 2024

Concerns and predictions on CPEC reliance for Pakistan – Dr. Atiq Rehman

The economic expert explains whether the reliance on CPEC was good for the Pakistani economy and what Pakistan needs to do to ensure that it profits from CPEC.

Since CPEC loans are not calibrated. We don’t know what the costs and benefits are, whether they are concessional loans or market loans. Sure, CPEC loans are beneficial, but we must pay prohibitive cost too. It is only after calibration that we can know precisely the exact plus and minus of the projects. Without this clarity, uncertainties will remain over CPEC loans.

Some commentators and analysts say it will generate high profits, few will say return on investment is 17% and others will argue that Pakistan will have to bear heavy cost due to high-interest rates. If the expected revenues are 17%, I would be surprised at this enormous number, as it is only toll tax. Hence, it might include something else too.

The government should also have parallel policies to tackle this issue. CPEC is a game changer, certainly, but, it lacks clarity.

Overall greater transparency is needed; CPEC is a heavy investment, for which Pakistan will have to pay back a higher return to Chinese authorities. If CPEC only had roads, and Pakistan is restricted to only collecting toll tax, then how would we pay return on it, and how will we generate the capability to do so?

The repayment capability is dependent on the transparency of this project. For example, on concessional loans, suppose, the return which we must pay is merely 1.6%, but return on market loans is 17%, this an enormous difference. The latter is impossible to pay, therefore, unless, we don’t know the exact numbers which are yet to be determined, we cannot say anything with certainty.

Read more: CPEC in the eyes of an economic guru

The ability to repay the debt is also dependent on the figures of the deal which haven’t been published. Overreliance on Chinese is certainly there. For example, in next 10-years, 40 million people will enter the job market, which is an enormous number.

But, CPEC can arguably generate 2 million jobs, so, where will the remainder 38 million people go? Hence, if we will only rely on CPEC to generate all jobs in the country, it is surely an issue of over-reliance. The government should also have parallel policies to tackle this issue. CPEC is a game-changer, certainly, but, it lacks clarity.

For example, 50% of CPEC is built on concessional loans, hence there should be no issue in the repayment, but, if 50% investment requires to pay 17% return, it will be a very difficult job. And if Pakistan gets into trouble, China will ultimately have to bail out Pakistan in the end.

Dr. Atiq Ur Rehman is a pioneering member of the South Asian School of Economic Thought. He is an Assistant Professor at the Pakistan Institute of Development Economics. Dr. Atif’s teaching and research interests are in applied economics and econometrics.