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IMF warns Pakistan after China raise investments

Outflows will also come in the form of repayment obligations on the loans taken from Chinese banks

Policy Pulse
Publish Date: Oct 18 2016 11:16AM | Updated Date: Oct 18 2016 4:07PM

IMF warns Pakistan after China raise investments

The International Monetary Fund has warned Pakistan that China's growing investments in the country, including the $46 billion economic corridor, have the potential to lift the economy, but the repayment obligations that come with it will be serious. 

 

"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. 

 

The report estimates that CPEC related imports could reach 11 per cent of total projected imports by 2020, equal to just over $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 and from a projected $11 billion for the current fiscal year, to $17.5 billion in 2020.  Pakistan will see $27.8 billion in the projects under CPEC, with the remaining $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, the amounts involved could add up to a significant level given the magnitude of the FDI. 

 

“However, the import requirements of these projects will likely offset a significant share of these inflows. The current account deficit would widen within manageable levels during these years,” says the international lender. 

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". 

 

Though the Monetary Fund acknowledges that CPEC related growth could cover these payments over the longer term, but warns that this is not guaranteed.