• Tuesday, December 12, 2017

Sheer size of CPEC portfolio appals IMF

Discussion in 'CPEC' started by Devil Soul, Dec 7, 2017 at 3:20 PM.

  1. Devil Soul

    Devil Soul ELITE MEMBER

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    Sheer size of CPEC portfolio appals IMF
    By Shahbaz Rana
    Published: December 7, 2017
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    PHOTO: REUTERS

    ISLAMABAD: As the overall size of the China-Pakistan Economic Corridor (CPEC) projects grows to $60 billion, the International Monetary Fund (IMF) cautioned Pakistan on Wednesday to be mindful about the adverse implications of repayments of loans and profit repatriations to China.

    The IMF expressed these concerns during their meetings with the officials of the Ministry of Planning & Development and the Ministry of Finance.

    Headed by its Washington-based Mission Chief Harald Finger, the delegation is in town to review Pakistan’s ability to repay its $6.1 billion outstanding loans to the fund.


    Pakistan will start repaying some of the CPEC-related loans in next one-and-a-half years that according to Pakistani authorities will start ballooning after 2020, consuming its earnings equal to 0.4% of Gross Domestic Product.

    In the initial year, the impact of the CPEC-related outflow is estimated at only 0.1% of GDP per annum by Pakistani authorities.

    But according to the IMF estimates, those repayments will peak after seven years, reaching to $3.5 billion to $4.5 billion in a single year. The IMF estimates the CPEC-related outflow impact at 1.6% of GDP per annum by 2024.

    CPEC toll income — myth and reality

    The IMF delegation was appalled at the implications of the $60 billion portfolio of CPEC, according to the sources.

    Its main concern was that Pakistan’s repayment capacity will remain weak, as the global lender does not see any major increase in exports in the near future due to a strong rupee against the US dollar.

    Initially, the size of the CPEC portfolio was $46 billion that after inclusion of some new projects has grown to $60 billion.

    However, the IMF was informed that the $8.2 billion Main Line-I (ML-I) project of Pakistan Railways was taking some time to get mature and its impact should not be included in the CPEC-related outflow obligations, said the sources.

    During the seventh Joint Cooperation Committee meeting, no major breakthrough was achieved on signing further agreements of the ML-I project and the Karachi Circular Railways project worth $2 billion.

    Similarly, there were few other projects that were also not picking up. The Pakistani authorities said the CPEC-related outflows would be roughly $2 billion from 2020 onwards, which the country can comfortably finance due to increase in exports.

    The IMF was told that the real value of the CPEC projects was not more than $46 billion and so far projects worth only $23 billion have matured, said the sources.

    CPEC at ease

    “We have done detailed working about the CPEC-related outflows and do not see any liquidity crunch,” said Shoaib Siddiqui, Secretary of the Planning and Development while talking to The Express Tribune.

    He agreed that Pakistan needs to build sufficient foreign currency reserves.

    But the sources said the IMF team was of the view that there will still be pressure on balance of payments due to the CPEC-related outflows.

    The IMF team said that due to an overvalued rupee, exports would not see major increase.

    The team also said direct impacts on external balance are expected to be substantial due to CPEC-related outflows of loans repayments, profit repatriation and the cost of imported fuel for power plants being set up under CPEC.

    The Pakistani team was of the view that the country has reprioritised its energy basket that will lessen the fuel import bill in the medium term.

    In its latest report on Pakistan, issued in July, the IMF also underscored that over the longer term, Pakistan would need to manage increasing CPEC-related outflows.

    The size of repatriation would also depend on the timing of project completion and the terms of the power purchase agreement.

    The IMF also said due to increasing government and CPEC-related external repayment obligations, external financing needs are projected to increase to nearly 7.5% of GDP over the medium term, highlighting the need for macroeconomic and structural policies supporting competitiveness.

    It said strong and sustained reform efforts aimed at raising exports by improving competitiveness and the business climate will be critical to maintaining long-term external sustainability.
     
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  2. Counterpunch

    Counterpunch FULL MEMBER

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    Well of course there aren't going to be outflows only which are visible now. The inflows and the GDP % increase is not ascertainable exactly as yet but it would certainly be lots of positive from it. I am GoP Planning division has that area worked out too and hence Mr. Shoaib is not bothered one bit
     
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  3. UnitedPak

    UnitedPak PDF THINK TANK: CONSULTANT

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    1.6% of GDP? How is thing even being calculated. They appear to be making some interesting assumptions here:

    1) Pakistani economy which is currently at 300bill growing at almost 6% will still be 300bill by 2024. (4.5 billion of 300bill = 1.5%)
    2) CPEC projects including power, roads, ports, rail will not return anything to the GDP.
     
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  4. 313ghazi

    313ghazi FULL MEMBER

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    "ooh don't borrow from the Chinese - borrow from us!"
     
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  5. TANAHH

    TANAHH FULL MEMBER

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    Beware of IMF's austerity measures.
     
  6. volatile

    volatile SENIOR MEMBER

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    Lol Pakistan is not the only country in the world who is following the debt model , USA tops the list with CHina /Japan / Germany and all major economies are in the same mess ,problem is the system which provides provision to repat debt and take loan to pay debt unfortunately this is happening all over the modern economics interesting thing is the reserves ,If reserves are increasing it will be okay to repay
     
  7. Enigma_

    Enigma_ FULL MEMBER

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    Why is the IMF worried about CPEC lol?
     
  8. UnitedPak

    UnitedPak PDF THINK TANK: CONSULTANT

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    IMF would have loved to fund these projects, but for the purpose of applying political pressure on behalf of their handlers over the next 80 years with further strings attached. The idea of Pakistan getting all this infrastructure in one go, which significant parts of Asia will be dependent on, is of course "appalling".

    Debt is not the issue. The assets have great strategic value.
     
  9. Dalit

    Dalit SENIOR MEMBER

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    It is sour grapes for the likes of IMF/WB, the US and many others. They would have loved to see Pakistan falter miserably and step in to claim the pie. Then came China along. The butt hurt these people are experiencing is monstrous. Not a day goes by without CPEC warnings and reminders.
     
    Last edited: Dec 7, 2017 at 8:47 PM
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  10. cloud4000

    cloud4000 SENIOR MEMBER

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    IMF wants its money back, which is understandable.

    But reserves are not increasing, but decreasing. This the point. It's not the debt level IMF is worried about, it's Pakistan's ability to repay its debt with dwindling foreign reserves.

    Than tell the IMF to take a hike. But Pakistan needs IMF, especially in the short-term, until benefits of CPEC are realized. China could supplant IMF, but I doubt they want to invest more in Pakistan than they already have.
     
  11. Syed1.

    Syed1. FULL MEMBER

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    Going by media reports seems like CPEC is bigger disaster than Hiroshima and Nagasaki combined.
     
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  12. newb3e

    newb3e FULL MEMBER

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    jab aglay ki g may zyada fire burn ho rahi ho samjh lo app kuch sahi kar rahay ho!!
     
  13. Shah Khalid

    Shah Khalid FULL MEMBER

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    Let Me Just Show You Some Facts.According To ADB We Lose 3 to 5% of Our GDP To Load Shedding And 3 to 5% To Poor Transport Infrastructure.CPEC Addresses Both These.After Completion We Regain Lost GDP According To Very Conservative Estimates We Can Gain 2.5% Extra GDP Growth.And This Is Just Our Domestic Economy.

    Transit Fees and Increased Exports As A Result of SEZs Are Apart From This.
     
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  14. protest

    protest FULL MEMBER

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    True. Its a win-win for China and its companies. Good decision by Pakistan.
     
  15. ziaulislam

    ziaulislam SENIOR MEMBER

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    Gdp should double in next 5 years
    Issue is long term perspectives are poor because zero focus on education

    Ease of doing business is not improved ..the very reason in order for a project to work we need to put it in cpec
     
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