IMF warns Pakistan of Chinese investments

“During the investment phase, as the ‘early harvest’ projects proceed, Pakistan will experience a surge in FDI and other external funding inflows,” says the IMF in a short evaluation of the impact of China-Pakistan Economic Corridor (CEPC) related investments on Pakistan. However, the import requirements of these projects “will likely offset a significant share of these inflows, such that the current account deficit would widen” within manageable levels during these years, the international lender was quoted as saying by the Dawn newspaper. 

The report estimates that CPEC related imports could reach 11 per cent of total projected imports by 2020, equal to just over USD 5.7 billion, while inflows under the corridor will touch 2.2 per cent of projected GDP in that year. Gross external financing needs of the country will jump almost 60 per cent by then, from a projected USD 11 billion for the current fiscal year, to USD 17.5 billion in 2020. Pakistan will see USD 27.8 billion in ‘early harvest’ projects under CPEC in the next few years, with the remaining USD 16 billion coming over a longer timeline stretching out to 2030. “Pakistan will need to manage increasing CPEC-related outflows,” warns the IMF, once the Chinese investors begin repatriating profits, adding that the amounts involved “could add up to a significant level given the magnitude of the FDI”. 

Outflows will also come in the form of repayment obligations on the loans taken from Chinese banks for these projects, which are expected to rise after 2021. Both of these, repayments and profit repatriation, “could reach about 0.4 per cent of GDP per year over the longer run”. The IMF acknowledges that CPEC related growth could cover these payments over the longer term, but warns that this is not guaranteed. 

The 3,000-km-long CEPC, which is part of China’s Silk Road project, officially called Belt and Road is aimed at connecting the two countries with rail, road, pipelines and optical cable fiber network.