Pakistan

Demystifying CPEC Loans & Repayments

October 12, 2018

The Planning Commission of Pakistan, in its latest statement, has dismissed myths surrounding Pakistan’s CPEC-related debts and repayments while apparently also addressing the uncertainty factor, currently prevailing in the economy

According to the statement, outflows under China-Pakistan Economic Corridor (CPEC) will begin in 2021 and peak over the next three years without creating a debt trap. Starting in 2021, these repayments will about $300-400 million annually and gradually peak to about $3.5 billion by fiscal year 2024-25, before tapering off with total repayments to be completed in 25 years.

The statement categorically dismissed the fears surrounding the loans and repayments, stating that “CPEC is not imposing any immediate burden with respect to loans repayment and energy sector outflows”, arguing all debt related outflows will be outweighed by the resultant benefits of the investments to the Pakistan economy. The Commission reiterated that CPEC was a “flagship” project and most active project of Belt and Road Initiative where 22 projects worth a total of $28 billion have been actualized over the past four years. “The project could not be compared with Chinese overseas investment in Sri Lanka or Malaysia as frameworks and financial modes of CPEC are altogether different in nature” the statement continued.

CPEC finances are divided in government to government loans, investment and grants. Infrastructure sector is being developed through interest free or government concessional loans. Gwadar Port is grant-based investment which means the Government of Pakistan does not have to pay back the invested amount for the development of the port. Energy projects are being executed under Independent Power Producers (IPPs) mode and finances are mainly taken by the private companies from China Development Bank and China Exim Bank against their own balance sheets, therefore, any debt would be borne by the Chinese investors instead of any obligation on part of the Pakistani government. Pakistan has, thus, pragmatically opted for Chinese investment under CPEC due to the favorable financing arrangements, keeping the national interests impregnable.

Excerpts taken from the media reports.

 

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