pakistan economy to face severe crises over chinese loan

[NakedLunch]

And, the Turkish folks need you. Insha'Allah they have a bright future together in all aspects - defense, trade, education, economy, industry, construction etc. These Last Castles at the western and eastern flanks will not fall Insha'Allah!!

I will never forget the love I received in Turkey when I visited with my family. You guys are our pride and honour. May Allah defend you.

 

[Hakikat ve Hikmet]

I will never forget the love I received in Turkey when I visited with my family. You guys are our pride and honour. May Allah defend you.

Amin!!

 

[NakedLunch]

Amin!!

Thuma Amin.

 

[SQ8]

To be honest, Pakistan being a poor country, has no choice anyway. It's generally considered a risky country for foreign investors, due to the security and economic/investment climate situation and corruption of the country. So obviously Chinese investors will charge a higher interests for their loans considering the high risks involved by such a huge investment. I don't find anything wrong there. At least they are getting some investment.
Granted that they should manage these loans to the best of their ability given the high interests rate which they have to repay together with the lump sum of the loan itself, else they MIGHT end up worse off at the end of the day. So it all depends on how well they manage and allocate these funds in the most productive areas of their economy as well. The Jury is still out there. Only time will tell.

The most important thing in this article and something i find really commendable, is the fact that some people in the country are aware and rational enough to indulge in self criticism and looking at any loopholes and asking questions from any investments/loans even coming from a very close ally at the risk of being labelled traitors or puppets of foreign powers lol ) That's a good start, since one might have expected them to turn a blind eye on this aspect and ignore everything else in there. Once a country can self criticize/introspect irrespective of which country it affects, then that's a good start in self correction and making things right or even better in future

Unfortunately, as with most third world nations(and certain first world ones as well) with a large percentage of uneducated and/or willfully ignorant populace(understanding english and being able to use it as a language is NOT representative of education) , most ills are blamed on foreign hands and any questions on overly optimistic projects taken as traitorous comments.

As they say, if the gutter is over flowing: "screw the west!!, it is their fault that these corrupt politicians were elected in the elections which we had in front of us and even participated in,which is why our gutters are not fixed by these broken state institutions which these politicians exploit for their own personal gains right in front of us"

 

[Mo12]

What I heard that Pakistani economy is booming despite terror attacks and is continuing to grow.

4% growth is not booming.

who is telling u this fake news?

 

[Avon]

View attachment 379229

We effectIndians have started producing more Solar Power than the Total Power Pakistan produces from all sources

Therefore We know where we are Heading : Towards RENEWABLE SOURCES

But why I am telling it to someone who openly PROCLAIMS
People who think they know everything are a great annoyance to those of us who do.

True, back in 2012 coal production and energy generation from coal was effected by coal scam, and there was a slow growth in solar sector too, 5years down the line its a different picture,both coal and solar now have a target to achieve and they look set to achieve it too.

 

[Indika]

Why does not pakistan raise money in form of bonds from GCC countries instead of taking loan from china? At least they will have the option of spending where ever they want and wont be under any obligation to buy equipment from the lender. GCC countries might be amenable to delayed payments or make adjustment when need arises.

 

[XDescendantX]

It's just another evil attempt of jealous Anti-Pakistan Anti-China countries to try to break-up or even plant the seeds of a break-up between the two Iron Brothers.
Don't forget the U.S. and India have openly admitted their dislike for CPEC. Long live

 

[maximuswarrior]

A quote from wiki:

The energy projects under CPEC will be constructed by private Independent Power Producers, rather than by the governments of either China or Pakistan.[157] The Exim Bank of China will finance these private investments at 5–6% interest rates, while the government of Pakistan will be contractually obliged to purchase electricity from those firms at pre-negotiated rates.[158]

The irony is that suddenly everyone has an opinion. Suddenly everyone is ready to hand out lectures to Pakistan regarding its economic future. These are the same "professors" that were ridiculing Pakistan's economic prospects not so long ago. In fact, according to these "professors" Pakistan had no economic prospect whatsoever. After the Chinese investment suddenly everyone has an opinion and it is laughable. It is hilarious.

Pakistanis fully understand the importance of Chinese investment. China has stood firmly by Pakistan when our so-called "allies" left us high and dry. These so-called allies blame us for all the ills in the world. China doesn't resort to blame games. China doesn't intend to support terror in Pakistan unlike our so-called allies. Instead, China support the well-being of Pakistan. We fully grasp who our friend and foe is. We will stand shoulder to shoulder with China. Those who cannot fathom this notion can go to hell. Whether they live among us or belong to a foreign nation.

Anyone who criticizes Chinese investment in Pakistan should answer a simple question. Which other country out of your so-called list of allies would be willing to inject such a massive sum in Pakistan? These critics wouldn't be able to name a single country. Not one. The so-called allies of these critics only offer bribes in the shape of monetary aid. We can count the beneficiaries of these bribes on one hand.

These critics are an abomination and we will not let them spoil China Pak relations at any cost. Not only will CPEC prosper, but China Pak military relations are also reaching new heights. This relationship will get only stronger.

 

[Lil Mathew]

so nothing serious to worry about?

This is a lottery for Chinese.. Because last year they got only 2.8% returns from their global investments.. They are one of the major holders of US debts(~$1 trillion) , but the interest rate is as low as 2.4%.. Compare these with the case of Pakistan..
Every CPEC power projects are in loan and equity structure.. That is 75% loan & 25% equity.. According to sources this 75% loan have an interest rate of 6%.. But there is an additional cost of insurance is also there.. That is as much as high as 7%.. So the resultant interest will be as high as 13%.. Equity entertain a return of 28-34% returns.. That means almost 18-20% interest you have to pay for this financing..
That means almost $7-8 billion/annum for 30 years for a total $35 billion finance..( That is within 5 year you will give $40 billion or more than total finance back ,but you have to continue same for next 25 years)
Compare this with China only gets $24 billion/annum for their $1trillion in USA..
The real problem is if Pakistan lapse $5billion for first 5 years.. Then you have to pay $15 billion for next 25 years..

 

[ABCharlie]

You can wiggle, you can wriggle. You can moan, you can groan. You can cry, you can fry.

The bullet of CPEC has already left the gun and hence way past the u-turn point. Folks, this is already happening. Projects are signed, projects are being built, projects are already completed.

Bemoaning it now is just a waste of time.

 

[SBD-3]

bro i dnt know mich about ecomics i just post it so that people who knows about economy can shed some light

The power projects are productive infrastructure and to be honest, Pakistani Financial sector doesn't have sufficient funding available for financing the CPEC projects domestically. Pakistan and China do have bi-lateral currency swap (Dysfunctional to great extent) line in place. With trade and financial linkages improving between the country the bilateral trade may end up being settled in Chinese Yuan-Pak Rupee than US Dollar.

This is a lottery for Chinese.. Because last year they got only 2.8% returns from their global investments.. They are one of the major holders of US debts(~$1 trillion) , but the interest rate is as low as 2.4%.. Compare these with the case of Pakistan..
Every CPEC power projects are in loan and equity structure.. That is 75% loan & 25% equity.. According to sources this 75% loan have an interest rate of 6%.. But there is an additional cost of insurance is also there.. That is as much as high as 7%.. So the resultant interest will be as high as 13%.. Equity entertain a return of 28-34% returns.. That means almost 18-20% interest you have to pay for this financing..
That means almost $7-8 billion/annum for 30 years for a total $35 billion finance..( That is within 5 year you will give $40 billion or more than total finance back ,but you have to continue same for next 25 years)
Compare this with China only gets $24 billion/annum for their $1trillion in USA..
The real problem is if Pakistan lapse $5billion for first 5 years.. Then you have to pay $15 billion for next 25 years..

Indians can enjoy the same perks. Average RoE in power projects in Pakistan is around 25%, no where in the world you get that. And as a result, almost every corporate entity in Pakistan is investing in power production. From Textiles, Sugar, Cement, Steel, Conglomerates and even the paper producers.
Chinese have long been investing their money in strategic sectors. Chinese firms are amongst the biggest investors in African Mining and Exploration Industry. And that's a decade before they started to show interest in Pakistan.

 

[TacOps]

This is a lottery for Chinese.. Because last year they got only 2.8% returns from their global investments.. They are one of the major holders of US debts(~$1 trillion) , but the interest rate is as low as 2.4%.. Compare these with the case of Pakistan..
Every CPEC power projects are in loan and equity structure.. That is 75% loan & 25% equity.. According to sources this 75% loan have an interest rate of 6%.. But there is an additional cost of insurance is also there.. That is as much as high as 7%.. So the resultant interest will be as high as 13%.. Equity entertain a return of 28-34% returns.. That means almost 18-20% interest you have to pay for this financing..
That means almost $7-8 billion/annum for 30 years for a total $35 billion finance..( That is within 5 year you will give $40 billion or more than total finance back ,but you have to continue same for next 25 years)
Compare this with China only gets $24 billion/annum for their $1trillion in USA..
The real problem is if Pakistan lapse $5billion for first 5 years.. Then you have to pay $15 billion for next 25 years..

75/25 Debt to Equity in infrastructure projects is quite normal. In fact it's this high D/E which boosts the IRR for equity holders.

I think the insurance costs might be high upfront as potential liquidated damages etc resulting from delay might be insured against too, but once operational they ought to come down.

 

[Mumm-Ra]

Hope this article helps in clearing things up

http://www.dawn.com/news/1313992/financing-burden-of-cpec

The ongoing debate on the impact of CPEC projects on future external payments’ obligations is welcome, but should be informed by analysis based on facts rather than opinion.

The total committed amount under CPEC of $50 billion is divided into two broad categories: $35bn is allocated for energy projects while $15bn is for infrastructure, Gwadar development, industrial zones and mass transit schemes. The entire portfolio is to be completed by 2030. Therefore, the implementation schedule would determine the payments stream. Energy projects are planned for completion by 2020, but given the usual bureaucratic delays, it won’t be before 2023 that all projects are fully operational. Under the early harvest programme, 10,000 MW would be added to the national grid by 2018. Therefore, the disbursement schedule of energy projects is eight years (2015-2023). Infrastructure projects such as roads, highways, and port and airport development, amounting to $10bn, can reasonably be expected to be concluded by 2025, while the remaining projects worth $ 5bn would spill over into the 2025-30 period.

Examine: Hidden costs of CPEC

Given the above picture, it is possible to prepare a broad estimate of the additional burden on Pakistan’s external payment capacity in the coming years. As the details of each project become available, the aggregate picture can be refined further. The margin of error would not cause significant deviation.

It is possible to prepare an estimate of the additional burden on our external payments’ capacity.
The entire energy portfolio will be executed in the IPP mode —as applied to all private power producers in the country. Foreign investors’ financing comes under foreign direct investment; they are guaranteed a 17pc rate of return in dollar terms on their equity (only the equity portion, and not the entire project cost). The loans would be taken by Chinese companies, mainly from the China Development Bank and China Exim Bank, against their own balance sheets. They would service the debt from their own earnings without any obligation on the part of the Pakistani government.

Import of equipment and services from China for the projects would be shown under the current account, while the corresponding financing item would be FDI brought in by the Chinese under the capital and finance account. Therefore, where the balance of payments is concerned, there will not be any future liabilities for Pakistan.

To the extent that local material and services are used, a portion of free foreign exchange from the FDI inflows would become available. (Project sponsors would get the equivalent in rupees). For example, a highly conservative estimate is that only one-fourth of the total project cost would be spent locally and the country would benefit from an inflow of $9bn over an eight-year period, augmenting the aggregate FDI by more than $1bn annually. This amount can be used to either finance the current account deficit or reduce external borrowing requirements. Inflows for infrastructure projects for local spending would be another $4bn over 15 years.

Taking a highly generous capital structure of 60:40 debt-to-equity ratio for energy projects, the total equity investment would be $14bn. Further, assuming the extreme case that the entire equity would be financed by Chinese companies (although this is not true in the case of Hubco and Engro projects, where equity and loans are being shared by both Pakistani and Chinese partner companies) the 17pc guaranteed return on these projects would entail annual payments of $2.4bn from the current account.

CPEC’s second component, ie infrastructure, is to be financed through government-to-government loans amounting to $15bn. As announced, these loans would be concessional with 2pc interest to be repaid over a 20- to 25-year period. This amount’s debt servicing would be the Pakistan government’s obligation. Debt-servicing payments would rise by $910 million annually on account of CPEC loans (assuming a 20-year tenor). Going by these calculations, we can surmise that the additional burden on the external account should not exceed $3.5bn annually on a staggered basis depending on the project completion schedule.

As a proportion of our total foreign exchange earnings of 2016, this amounts to 7pc. These calculations do not take into account the incremental gains from GDP growth that will rise because of investment in energy and infrastructure. As the loan amounts would be disbursed in the next 15 years and repayments would be staggered, the adding of the entire $15bn to the existing stock of external debt and liabilities is not an accurate representation. The more realistic approach would be a tapered schedule, with $2bn to $3bn getting disbursed in the earlier years and slowing down in the second half.

The question is: how do we find the extra non-debt-creating resources of $3.5bn to offset this additional burden? If the export slowdown was due to energy shortages, the availability of increased supplies should boost exports fetching higher foreign exchange revenues. Exports have to grow by 14pc annually in dollar terms to compensate for these outflows if all other sources remain unchanged. This is not unprecedented as Pakistan has previously recorded this growth rate. Further, the substitution of imported fuels with domestic ones such as hydro, coal, wind and solar should be able to result in savings of at least $1bn annually. These measures will need concerted action.

To make this happen, Pakistan has to take some policy actions on a priority basis: (a) make coordinated efforts to increase the volume of exports by diversifying product mix, penetrating new markets, revising free trade agreements, reducing transaction costs; (b) attract foreign investment in manufacturing and export sectors and set up joint ventures in the industrial zones; (c) channel workers’ remittances though the banking system by reducing the differential between the open and inter-bank market rates; (d) accelerate training of skilled, technical and professional manpower who can take over jobs from the Chinese, thus bringing cost savings and reduced outflows; (e) reform the power sector by privatising DISCOs, mandating Nepra to develop competitive power markets and power exchanges by providing open access to producers for transmission and distribution, setting tariffs through open and transparent bidding, and introducing smart technologies. These measures would certainly help in easing the pressure on external accounts.

The writer is former governor of the State Bank of Pakistan.

Published in Dawn, February 11th, 2017

 

[maximuswarrior]

You can wiggle, you can wriggle. You can moan, you can groan. You can cry, you can fry.

The bullet of CPEC has already left the gun and hence way past the u-turn point. Folks, this is already happening. Projects are signed, projects are being built, projects are already completed.

Bemoaning it now is just a waste of time.

The moaning is a solid confirmation that our enemies are reeling. The fact that we have foreigners arguing about our economic future is very telling. It is amusing. All I can do is laugh at the ludicrous remarks.