Wednesday, July 19, 2017

CPEC Financing: Is Pakistan Being Ripped Off By China?

Is China ripping off its all-weather friend Pakistan by charging high interest rates on loans and exorbitant guaranteed returns on investments in China Pakistan Economic Corridor (CPEC) projects?  That's a question that is being asked on a frequent basis by Pakistan's friends and foes alike. While friends of China-Pakistan ties are concerned about an undue burden on Pakistanis, the foes see CPEC as an opportunity to create a lot of fear, uncertainty and doubt about it and its benefits for Pakistan's economy and society. Who's right? Who's wrong? Why? Let's dive into it.

CPEC Projects in Pakistan

Claims by CPEC Detractors:

Many Western and Indian opponents claim that the cost of CPEC financing will be so high that Pakistan will not be able to bear it. They assert that China is attempting to catch Pakistan in a debt trap from which the country will not be able to escape, eventually turning it into a Chinese colony. The financing costs for Chinese loans and investments they claim are in high teens.

Misguided Pakistani Analysts' View:

Many well-meaning Pakistanis, including serious economists, seem to echo detractors' claims without any serious examination or comparison with prevailing bench-marks. They do not mention how similar projects in other parts of the world are financed and what sort of interest rates and return-on-equity are guaranteed.

CPEC Finance Rates vs Benchmarks:

About two-thirds of Chinese CPEC funding is for power projects while one-third is for infrastructure projects like roads, rail lines and ports.

The Chinese soft loans for CPEC infrastructure projects carry an interest rate of just 1.6%, far lower than similar loans offered by the World Bank at rates of 3.8% or higher.

Chinese companies investing in Pakistan power sector are getting loans from Chinese banks at commercial interest rates. These loans will be repaid by the Chinese companies from their income from these investments, not by Pakistani taxpayers.

The rate of return guaranteed by Pakistan power regulators to the Chinese power companies is about 17%. Is it too high, as some claim? Let's compare it to the US market considered among the safest investments in the world.

Rate of Return in United States: 

The average return on equity for almost 8,000 US firms is 14.49%. The power utility companies – with an average of 10.13% – are on the lower end of the spectrum because they are viewed as less risky investments.

In the United States, rate of return varies significantly from state to state, as each state regulator has exclusive authority to regulate utility operations as they choose.

In Advance Energy Economy (AEE) Power Portal database, which tracks ROE for over 100 investor-owned utilities across the country, the highest allowed ROE belongs to Alabama Power Co., at 13.75% while the lowest belongs to United Illuminating Co. (CT) at 9.15%.

Within the US states, Alabama being seen as relatively less safe for investment, offers 13.75% return. So why is it such a surprise to see Pakistani regulator offer Chinese investors a higher rate of return of 17%?

Growing Infrastructure Gap:

Development of physical infrastructure, including electricity and gas infrastructure, is essential for economic and social development of a country such as Pakistan. China-Pakistan Economic Corridor financing needs to be seen in the context of the large and growing infrastructure gap in Asia that threatens social and economic progress.

 Rich countries generally raise funds for infrastructure projects by selling bonds while most developing countries rely on loans from international financial institutions such as the World Bank and the Asian Development Bank to finance infrastructure projects.

The infrastructure financing needs of the developing countries far exceed the capacity of the World Bank and the regional development banks such as ADB to fund such projects. A recent report by the Asian Development Bank warned that there is currently $1.7 trillion infrastructure gap that threatens growth in Asia. The 45 countries surveyed in the ADB report, which covers 2016-2030, are forecast to need investment of $26 trillion over 15 years to maintain growth, cut poverty and deal with climate change.

Pakistan Country Report in Shanghai Business Review Feb/March 2016


Summary:

China is financing CPEC projects at rates that are comparable to similar projects elsewhere. Chinese loans for infrastructure projects such as rails, roads and ports are at rates (2% or less) below those (3.8%) offered by the Asian Development Bank and the the World Bank. The rate of return on power project investments under CPEC is 17%, somewhat higher than the 13.75 offered by much safer US state of Alabama.

Development of physical infrastructure, including electricity and gas infrastructure, is essential for economic and social development of a country such as Pakistan. China-Pakistan Economic Corridor financing needs to be seen in the context of the large and growing infrastructure gap in Asia that threatens social and economic progress.

An unrelenting campaign of fear, uncertainty and doubt (FUD) about China-Pakistan Economic Corridor (CPEC) has been unleashed in the media in recent weeks. This strategy harkens back to the aggressive marketing techniques used by the American computer giant IBM in the 1970s to fight competition. Part of the motivation of those engaged in FUD against CPEC appears to be to check China's rise and Pakistan's rise with its friend and neighbor to the north. As in IBM's case, the greatest fear of the perpetrators of FUD is that CPEC will succeed and lift Pakistan up along with rising China.  Their aim is to preserve and protect the current world order created by the Western Powers led by the United States at the end of the second world war.   Pakistani government should respond to the FUD campaign against CPEC by countering it with facts and data and increasing transparency in how CPEC projects are being financed, contracted and managed. 

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42 comments:

Majumdar said...

Brofessor sb,

Chinese companies investing in Pakistan power sector are getting loans from Chinese banks at commercial interest rates. These loans will be repaid by the Chinese companies from their income from these investments, not by Pakistani taxpayers.

But where are the chaptas going to generate income from- obviously by selling power to Pakistanis, taxpayers and otherwise. Presumably those who dont pay taxes dont pay power dues and the vice versa . So ultimately Pakistani taxpayers will be picking up the tabs.

Regards

Anonymous said...

https://www.dawn.com/news/1346390/advancing-cpec-by-stealth

Riaz Haq said...

Majumdar: "So ultimately Pakistani taxpayers will be picking up the tabs."

Taxpayers will only need to subsidize power purchases if the power companies fail to collect dues from consumers. But subsidies will hopefully be a lot less than the entire amount of power bills.

The important thing is the rate of return guaranteed which is 17%, only a couple or three points above what the US states such as Alabama guarantee investors.

Riaz Haq said...

Anon: "https://www.dawn.com/news/1346390/advancing-cpec-by-stealth"


Industrial corridors such as CPEC are meant to create competitive power and transport infrastructure to facilitate investment and trade.

There are dozens of manufacturing and agri special zones being planned around CPEC.

As Dawn's Khurram Husain puts it: "Of course, there is nothing wrong with this. The agri-sector is in dire need of investments. But the fact that this is being done with some care to ensure no attention is brought to bear upon it is curious."

His main beef is with the government not acknowledging this.


As to the "dire need of investment" in agri, Pakistan's value added to agriculture is high for its region, it has been essentially flat since mid-1990s. It also lags significantly behind developing countries in other parts of the world. For example, per capita worker productivity in North Africa and the Middle East is more than twice that of Pakistan while in Latin America it is more than three times higher.

http://www.riazhaq.com/2013/11/pakistan-leads-south-asia-in.html

Riaz Haq said...

#China Calls #Pakistan's #CPEC Fastest and Most Effective of #BRI Projects

https://www.voanews.com/a/china-calls-pakistan-cpec-fastest-and-most-effective-of-bri-projects/3951874.html

China says its large economic collaboration program with Pakistan has entered “the stage of early harvest", making it the “fastest and most effective" among all projects in Beijing’s Belt and Road Initiative, or BRI.

President Xi Jinping launched the China-Pakistan Economic Corridor, or CPEC, two years ago, during his landmark visit to Islamabad. Cooperation has since cemented decades-old relations between the traditionally close allies.

China is investing about $60 billion on a network of roads, railways, fiber optic cables, energy pipelines, industrial clusters and special economic zones in Pakistan.

The corridor will link China's western region of Xinjiang to the Pakistani port of Gwadar on the Arabian Sea, giving the Chinese region the shortest trade route to international markets.

China's acting ambassador to Islamabad, Lijian Zhao, says that 19 CPEC projects worth about $19 billion are either completed or in progress.

“CPEC, as a pilot and major project of BRI, is now the fastest and most effective project among all the projects under the BRI,” he told a seminar in Islamabad.

He described the cooperation as an “unprecedented undertaking” in the history of China-Pakistan relations.

Economic cooperation connected to CPEC has employed thousands of Pakistanis and officials anticipate tens of thousands more will be hired in the next few years.

Gwadar is in Pakistan's Baluchistan province, where deadly attacks on CPEC workers have taken place in recent months.

Some critics in Pakistan have raised concerns about the viability of CPEC, while others have questioned its implications for the country. But officials dismiss the skepticism as unfounded.

“Despite (the fact) there is this criticism and noises here and there, after this four years of hard work and joint efforts of both countries, the CPEC has not been affected by those noises. I can report to you that CPEC is going on very well on the ground,” said the Chinese envoy. He did not elaborate further.

Most of the CPEC projects are in Baluchistan. Pakistani officials allege rival India’s intelligence agency is behind the militant attacks in the province in an attempt to sabotage the Chinese investment.

---

“May I point out, unfortunately, our eastern neighbor (India) has publicly announced its opposition to CPEC. The grounds they give for their opposition are baseless,” Janjua noted.

She went on to denounce India’s opposition as “appalling” for a project that she said would bring development and prosperity to the people of Kashmir.

“China and Pakistan stand shoulder to shoulder in developing CPEC on the agreed time lines. We will continue to march ahead with complete determination, ignoring the negative voices and forcefully responding to any threat to CPEC,” said Janjua.

The Pakistani military has deployed thousands of security personnel to guard the projects and protect Chinese experts and workers.

China has also rejected reported U.S. concerns China plans to turn Gwadar into a Chinese naval base.

Major infrastructure projects being established in the Chinese-funded port of Gwadar include a Free Zone and a new international airport that will be operational by next year, officials say.

While new highways are being built and existing roads upgraded to link areas under CPEC, a coal fired power plant in the central city of Sahiwal has recently been completed, adding 1,320-megawatts of electricity to Pakistan's national grid.

A second 1,320-megawatt coal fired power plant in the southern port city of Karachi is expected to be inaugurated by November at an estimated cast of about $2 billion.

China is also focusing on upgrading Pakistan's railways, increasing average speeds to about 180 kilometers an hour from the current average of 80 kilometers an hour, said Chinese envoy Zhao.

Lee Ping HK said...

China cannot help bribe and corruption in Pakistan economy. Pakistan is not very efficient like Chinese business. That is why the benefit to Pakistan will not be as good.

Nigel said...

Pakistan is blessed with its location that China finds attractive. Biggest benefit in GDP growth comes from "neighbourhood trade". Pakistan has nearly closed links with its neighbours. Even if firms decide to set up shop in Pakistan trade with bigger India is shut off. Many Euro firms use NAFTA infrastructure in Mexico to ship goods to the US for example.
Therefore it's not fear or uncertainty. Simply it doesn't make much business sense.

Riaz Haq said...

SPECIAL REPORT
One Lifebelt, One Road
China makes Pakistan an offer it cannot refuse

https://www.economist.com/news/special-report/21725101-leg-up-all-weather-friend-china-makes-pakistan-offer-it-cannot-refuse

MOVE OVER, DUBAI. Some day soon, cruise ships will disgorge frolicking pensioners not by the palm-fringed Persian Gulf but on the balmy Pakistan Riviera. From the muddy delta of the Indus to the barren Baloch coast, a twinkling constellation of attractions is set to rise: luxury hotels, water parks, golf courses, health spas, yacht harbours, night clubs, the works. To top it all, this “vacation product” will be developed in such a way that “Islamic culture, historical culture, folk culture and marine culture shall all be integrated.”

Or so promises a prospectus, drafted for the Chinese government by the China Development Bank, that sets out a detailed vision of the China-Pakistan Economic Corridor (CPEC). Billed as a flagship of China’s $900bn One Belt, One Road initiative to build an Asia-wide infrastructure system tying China more firmly to its markets, CPEC promises to inject some $60bn of Chinese investment into Pakistan. More than half is earmarked for power generation, but there is plenty left over for roads, seaports, airports, fibre-optic cables, cement factories, agro-industry and tourism.

For a country that has struggled to nudge its capital-investment ratio to 15% of GDP—compared with around 30% for India and 28% for Bangladesh in recent years—this gush of Chinese money comes as a godsend. Not only does it promise to energise the economy and fix such problems as chronic power shortages; it represents a strategic insurance policy against India. China has long been Pakistan’s chief arms supplier, and has quietly provided diplomatic cover and technical aid for its nuclear programme. As Chinese officials are fond of saying, China is an “all-weather friend”—unlike America, which has lavished some $78bn in economic and military aid on Pakistan since independence, but periodically gets stingy when Islamabad fails to curb terrorists.

----------

India views China’s spreading footprints next door with dismay. Officials put on a brave face. The Chinese are naive, say some, and will end up getting stung by Pakistan’s generals just as the Americans did. Others hope that once China discovers how far Pakistan’s deep state is entwined with Islamist radical groups, it will show less patience than the Americans.

Privately, however, Indian officials worry that Pakistan’s new patron may play the same role as America once inadvertently did, or as Pakistan’s nuclear deterrent still does: to allow Pakistan to sustain the awkward status quo. “Indian leaders have always calculated that sooner or later Pakistan would have to seek a normal relationship with us,” says Ashok Malik of the Observer Research Foundation, a Delhi think-tank. “CPEC gives them a new narrative: it puts them in China’s sphere.”

Riaz Haq said...

How #China beats #India hollow in trade and dominates #Indian homes, #markets #economy #trade http://economictimes.indiatimes.com/news/economy/foreign-trade/china-dominates-indian-homes-markets-and-economy-as-trade-deficit-widens/articleshow/59611452.cms via @economictimes

China seems to be grabbing most of it (solar panels). “The US and Europe are taking measures to protect themselves against Chinese dumping. We (Indians) have instead offered them a direct train to the Indian market. The government must ring fence Indian firms to allow them to grow,” says Chaudhary.

Miles away in Delhi, Rakesh Kumar Yadav shows you another Chinese-flavoured world. He is the president of the Federation of Sadar Bazar Traders Association. The umbrella platform for The umbrella platform for 83 other associations with 35,000 wholesale traders does business worth over Rs 3,000 crore annually and employs at least 100,000 people directly and indirectly.

About a decade back, the traders often used to source products — toys, plastic buckets, idols of Indian gods, among others — from domestic manufacturers. In toys alone, Yadav knows many Indian manufacturers who employed 500-plus people and were their suppliers. “They have all shut down and now import from China. Cheaper and better Chinese imports have wiped out the domestic industry,” says Yadav.

On the border, India is trying to ward off Chinese aggression. In the cold Himalayan plateau, temperatures have shot up as an old political rivalry heats up. India and China are sparring over the Doklam tri-boundary area (the third country being Bhutan), near Chicken’s Neck which connects India’s north-eastern states to the rest of the country. Shrill calls for a boycott of Chinese goods are getting louder, with the Rashtriya Swayamsevak Sangh (RSS) and its affiliate, the Swadeshi Jagran Manch, ..

Read more at:
http://economictimes.indiatimes.com/articleshow/59611452.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst

Kaptaan said...

Couple of things here to note.

1. China is not going "rip off" Pakistan. I say this not because I think China is a saint but because I know they are smart. Pakistan is important to China in a geo-strategic sense and is only one of few countries that are inside Chinese "close circle". For a few billion dollars to wreck a stategic allies economy which would send Pak into a tailspin would be suicidal thing to do for Beijing. China for it's own strategic strength needs Pakistan as a strong, prosperous country, that it can trade with, build military alliance with and have a long term strategic alliance with. Do you chop a apple tree for short term benefit or do you nurture it to gain fruit year after year?


2. Having looked at CPEC more few things have become apparent to me. I always felt it difficult to comprehend exactly how Gwadar would act as a port for China. The location is too far from mainland China and given the huge distance only high quality rail link would offer any chance of this happening - even at lower levels. I now understand that CPEC is not about finding a alternative route to the Arabian Sea that gives competition to the sea route through the Straits of Malaca. The real intention behind CPEC appears to be a Chinese effort to bring Pakistan into Chinese economic engines influence. That is it is a way for Chinese to enter Pakistan's economy and drive standards up which has win win effect for both Pak and China. In other words Pakistan has to open up to China and learn to walk the walk Chinese style. This will requite culltutal change inside Pakistan.

The full details of CPEC are in the link below. It's important to note that lot of sensitive details are left out and Chinese are subtle with teir language but you can read in between the lines what they want and what they expect of Pakistan. As long as Pakistan plays ball there is no chance of Pakistan losing. Indeed it will come out better even while it has to surrender some space to Chinese wishes and habits. Pakistan will by definition have to chill with Islamic rhetoric and move gently toward secularism without openly saying so.

I see nothing wrong with this. I see similarities in how America brought poor European countries into it's arc of influence (resulting in significant US influence and culture permeating ) after WW2. Here I am thinking of Greece, Spain, Italy etc and I would even include Turkey in this category. These countries gave space to US and in return were assured entry into American economic/military order which assured kiving standards and military security through NATO. Presently countries like Poland etc are getting the same benefits from Uncle Sam.Economc investment/trade is normally linked with military agreements entailing opening of US military bases under NATO architecture. Turkey has also been recipient of this and we know NATO has bases in Turkey.

In the same way I see CPEC as a vehicle for Chinese economic ingress into Pakistan which will tie Pakistan economically within the Chinese arc. This down the road will mature into full spectrum economic, military (expect Chinese bases ) and social relationship. For instance Chinese see Baloch coast as a place for Chinese holiday makers to visit as they do for instance Antalya in Turkey. Presumably full scale resorts that cater for Chinese holiday makers including drinks, food and other pursuits will be needed further down the road. It's all exciting stuff and I see Pakistan changing over the decades.

In short CPEC appears to be way for Chinese to move into Pakistan and help Pak economy on a road to development using Chinese technology and skills that they have learned in the miracle that country has witnessed in last 3 decades. CPEC will harvest the potential Pakistan has that at the moment lies latent. CPEC is not aboy funneling Chinese trade through Pakistan but switching on and turboboosting Pak trade and economy which has lied dormant all this time.

https://www.dawn.com/news/1333101/exclusive-cpec-master-plan-revealed

Majumdar said...

Brofessor sb,

That was quite useful, sir, thank you. However, I cud do with some additional info:

The important thing is the rate of return guaranteed which is 17%

Is the RoR guarantee only on the equity component; or the entire capital, I suspect it will be only equity.

But more fundamentally, is the 17% calculated on dollar basis or PKR. If the latter fine, if the former quite usurious. India for instance offers only 15% on INR basis.

Regards

Riaz Haq said...

Woodside sees Qatar LNG expansion hurting U.S. LNG growth

https://www.reuters.com/article/us-woodside-lng-idUSKBN1A50KT

MELBOURNE (Reuters) - A plan by top global liquefied natural gas (LNG) exporter Qatar to ramp up output will stall the expected growth of U.S. LNG exports, the head of Australia's Woodside Petroleum, operator of the country's biggest LNG plant, said.

Qatar surprised rivals this month when it lifted a self-imposed ban on development of the North Field, the world's biggest natural gas field, saying it would boost LNG output by 30 percent to 100 million tonnes a year in five to seven years.

That put it on course to it wrest back the title of the world's top LNG exporter from Australia, which is set to overtake Qatar in the next two years.

Woodside, operator of the North West Shelf project, said Qatar's plan showed the emirate shares its outlook for solid demand growth for LNG and gives importers like China, India, Pakistan and Bangladesh the supply certainty they need to lock in gas expansion plans.

"The Qataris will not take up all of the available market," Woodside Chief Executive Peter Coleman told Reuters in an interview on Thursday.

Qatar's expansion plan will compete directly with Woodside, which is looking to develop the Browse and Scarborough fields off Western Australia within the next decade - its so-called Horizon 2 projects - by processing gas through the North West Shelf plant or other existing facilities.

"On the challenge side, low cost will get into market, and that's what we're doing with our Horizon 2 projects. We're trying to make sure they're low cost, and they're well positioned, because we're targeting the Asian market," Coleman said.

Projects that will find it harder to compete will be those that need billions of dollars in new infrastructure and coal seam gas-to-LNG projects that need continuous capital spending to drill new wells, he said.

The International Energy Agency last week forecast the United States would become the world's second largest LNG exporter by the end of 2022, but Coleman said the Qatari expansion would stymie that growth.

"It'll keep a lid on U.S. expansions, because U.S. expansions are transportation-challenged," he said.

U.S. LNG flows largely into the Atlantic market, where it competes against pipeline gas from Russia and Norway.

Riaz Haq said...

#US to support #Pakistan to add at least 3,000 MW of clean power. #energy #renewables https://goo.gl/z1jLR1 via @NewIndianXpress

Giving a major relief to Pakistan, which has been facing chronic shortage of energy, severely limiting economic development, the United States will support Pakistan to add at least 3,000 megawatts of clean power generation infrastructure to Pakistan’s national electricity system by 2020. The U.S. assistance to Pakistan is being provided under U.S.-Pakistan Clean Energy Partnership, through which the USAID will support capacity building, technical assistance, USAID Development Credit Authority financial guarantees, business-to-business sales arrangements, and the construction of transmission lines to private projects to stimulate increased levels of private investment in clean power.

The U.S. has already made more than 2,400 megawatts available to Pakistan’s electricity grid, benefiting some 28 million Pakistanis, and has helped Pakistan take steps to reform its troubled energy sector since 2009. The U.S. has also funded the refurbishment or construction of nearly 1,100 kilometers of roads, enabling trade, security, and mobility.

---

“The U.S. Agency for International Development’s (USAID’s) on-budget investments in energy generation, facilitated by the Energy Policy Program (EPP), contributed to increasing generation capacity, energy production, and the reliability of power. EPP helped Pakistan develop the contractual framework that led to the first importation of liquefied natural gas,” report says.

It further says, “In 2016, the United States continued to focus on five sectors determined in consultation with the Pakistani government in 2011. Energy, economic growth including agriculture, stabilization of areas vulnerable to violent extremism, education and health with emphasis on improving democracy, governance, and gender equity are integrated into programming across the five sectors”.

The report stated that U.S. assistance has helped Pakistan improve governance and management systems, and increase the country’s distribution companies’ revenue collection by more than US $400 million, as well as provide commercial opportunities for U.S. businesses. The United States continued to fund infrastructure rehabilitation projects, especially in clean energy, and provided technical assistance to Pakistani energy institutions, including distribution companies, to increase power generation and improve performance.
The U.S. has also trained more than 5,600 police and 1,000 prosecutors across Pakistan; provided scholarships to approximately 15,000 Pakistanis to attend Pakistani universities, 50 percent of whom were women; and supplied better access to comprehensive family planning services to more than 100,000 women since 2009.

In 2016, the United States continued to build strong cooperation with Pakistan, including through U.S. assistance, as a stable, secure, prosperous, and democratic Pakistan is in the long-term U.S. national security interest.

Riaz Haq said...

Majumdar: "Is the RoR guarantee only on the equity component; or the entire capital, I suspect it will be only equity"


It is return on equity (ROE) and it's in US$ terms. Here's an analysis by ex State Bank of Pakistan governor Dr. Ishrat Hussain:


https://www.dawn.com/news/1313992

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.

------

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.

Riaz Haq said...

Is critical thinking a Western concept?

By Don Watson

https://www.britishcouncil.org/voices-magazine/critical-thinking-western-concept


Educators agree that critical thinking is a crucial skill for the 21st century, but is it harder to teach in some cultures than in others? Burmese educationalist Win Aung argues that critical thinking has a longer history in the East than many have recognised. The British Council's Don Watson reports.

According to IBM, 90 per cent of the data in the world was created in the last two years.

In order to make sense of this explosion of information you need to be able to tell the difference between wisdom and sophistry, between timely words of warning and interest-driven scaremongering. That power of analysis is what’s called critical thinking. It is defined by the Critical Thinking Community as the ability to check for ‘clarity, accuracy, precision, relevance, depth, breadth, significance, logic, and fairness’, to build knowledge from a range of sources, including your own experience.

Does an emphasis on critical analysis of information mean that one part of the world will be better equipped to learn the skills necessary for success? Received wisdom indicates that critical thinking is embraced more enthusiastically in the West than it is in the East. Politics, tradition and religion have, according to this view, formed a powerful triumvirate which conspires to leave half the world with an approach to knowledge that relies on rote learning, and regards questioning as anathema.

Dr Win Aung, a consultant with 30 years’ experience of working in education in Burma, accepts this view has some foundation in day-to-day life. It is particularly evident in a country still struggling to emerge from the shadow left by decades of authoritarian rule, but it is by no means the whole story.

‘We do have a more vertical and hierarchical model of society,’ Win Aung says. ‘Myanmar is largely still a country where the father rules in the home and the teacher rules in the classroom.’ But, he argues, the notion that critical thinking is a foreign concept is not just misguided, it is factually wrong.

‘Certainly in the Buddhist tradition, which is influential across the whole of Southern and Southeast Asia, there is a strong tradition of critical thinking. Some of the fundamental tenets of the Buddhist tradition are essentially an early version of critical thinking,’ he says. ‘The Buddha taught freedom of thought and freedom of enquiry to his disciples. The emphasis is on internal reflection and consideration of the value of a proposition, rather than on blind belief’.

So why is rote memorisation a predominant way of learning in Burma? The answer, Win Aung says, is partly down to the structure of the Buddhist religion. ‘The fact that Buddhist teachings are recorded in the Pali language, which does not have a writing system, puts a great emphasis on the ability to absorb and recite correctly, which consequently gained a value in the East that it was never accorded in the West’.


Kadeer said...

Equity = Assets - Liabilities

On equity you are guaranteed 17% return and there will be little liabilities owed by Pakistan for the $35 billion power projects portion. Keeping assets constant (in reality they go up), 17% of $35 billion is 600 million.
Add interest payments in the loan portion of CPEC = $1.2 billion that is the minimum that needs to be paid yearly.
Is that correct?

Riaz Haq said...

Kadeer: "17% of $35 billion is 600 million."

No, it's not 17% of all of $35 billion....the 17% return only applies to the equity portion of the project that'll likely be around 60% at most.

Here's Dr. Ishrat Husain: " 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."


Kadeer: " Add interest payments in the loan portion of CPEC = $1.2 billion that is the minimum that needs to be paid yearly.
Is that correct? "


The interest rate on infrastructure projects is only 1.6%.

Ishrat Husain: " 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."

Javaid said...

"..... the additional burden on the external account should not exceed $3.5bn annually on a staggered basis depending on the project completion schedule." Per RH.

$3.5 billion annually that is a big amount to pay.

Riaz Haq said...

Javaid: "$3.5 billion annually that is a big amount to pay."

It's about 1% of Pakistan's current GDP and about a third of Pakistan's current remittances from overseas workers,

Increasing investment via CPEC will accelerate GDP growth to 6-7% and make $3.5 billion in repayments even a smaller fraction of GDP and Pakistan's expected earnings from exports from many of the 46 SEZ's planned for CPEC.


The alternative to CPEC is to condemn Pakistan to a slow growth trajectory with power shortages and infrastructure deficits.

Munir said...

{Increasing investment via CPEC will accelerate GDP growth to 6-7%}

That will be very impressive but I have not come across that prediction. What is the time frame for 6-7% growth to happen? IMF and OECD predictions are lower in the short term.

Riaz Haq said...

Munir:" What is the time frame for 6-7% growth to happen? IMF and OECD predictions are lower in the short term"


It doesn't take a rocket scientist or brain surgeon to figure out the basics :-)

Pakistan has managed to grow its economy 4% plus with current investment to gdp ratio of about 15%.

Every 4% investment to gdp boosts GDP growth by 1%..... Bangladesh and India have managed around 7% growth by virtue of about 28-30% investment to GDP.

I expect CPEC projects to create a highly competitive infrastructure to attract greater investment to increase investment to gdp ratio to 25% to 30%.

Read more to learn: http://www.riazhaq.com/2014/05/declining-investment-hurting-pakistan.html

Riaz Haq said...

#Pakistan to quadruple #carbon emissions in 15 years despite feeling pain of #climatechange - The Ecologist #energy

http://www.theecologist.org/News/news_analysis/2989149/pakistan_to_quadruple_carbon_emissions_despite_feeling_pain_of_climate_change.html

At the same time, as Pakistan has developed, its carbon emissions have grown. Between 1994 and 2015, the country’s carbon emissions grew 123 percent.

And as the country continues to push forward with economic development, under its Vision 2025 strategy and the CPEC, the prime minister recently reiterated the goal of becoming one of the top 20 economies of the world by 2025.

To achieve this economic growth, there will be a focus on the energy and transport sectors, which already account for a sizeable amount of Pakistan's emissions.

In a recent statement, Pakistan’s minister for climate change stated that given the projected economic growth trajectory, emissions in Pakistan were expected to increase from 405 metric tons carbon dioxide to more than 1,603 metric tons of CO2 in the next 15 years - that means increasing by almost four times.

And although this will still not make Pakistan a big emitter, especially in comparison to its neighbours India and China, it will still have significant environmental impacts, as well as implications for Pakistan’s position as a country that has historically painted itself as a sufferer of the impacts of climate change, and not a contributor.

From an energy perspective, Pakistan’s development plans do include investment in renewables under the China Pakistan Economic Corridor, such as the $ 1.6 billion hydropower project in Karot, the $ 1.2 billion solar power park in Bahawalpur and the $ 260 million 100-megawatt wind farm in Jhimpir.

However, these are dwarfed by the huge investments in coal energy at the same time. As a country with a growing population, which faces an energy crisis, the government is justified in investing in energy, but at what future cost?

Recent reports also suggest that the price per unit of renewable energy in Pakistan is much higher than that of its neighbours, despite being tax free.

There are also a number of other hurdles, such as Pakistan’s rapid urbanization - more than half of the country will be living in urban areas by 2025, according to UN estimates. Karachi, the port city, is already the 7th largest megacity in the world.

Not only do urban areas consume a lot of energy, they are also responsible for producing the most emissions - UNHABITAT put the total emissions from carbon from cities at 60 percent, while putting the global consumption at 78 percent.

While Pakistan surges forward with its economic development plans, which is not only encouraging but much needed, it has two options: either to continue in its current role as a vulnerable country, and position itself through its policies as such, or to think 20 years into the future, when it will have a larger economy and a larger population, and create a balance in its policies between curbing emissions growth and adaptation needs.

Given the frequency and rate at which climate change is impacting Pakistan, it will always be a vulnerable country. However, experts are optimistic about Pakistan catching up to its neighbours, India and China, in terms of economic development, albeit with external assistance.

This also means that emissions are set to rise, and Pakistan’s current planning and policies are not fully addressing the implications this may have.

Ahmed F. said...

Plain Truth about the Economy is a perceptive and analytical piece in Pakistan's Dawn newspaper by a former World Bank economist Anjum Altaf. I believe some of you attended the engineering university in Lahore with him. One of my cousins did and he thinks highly of him.

He has questioned some of the hype and for that he will be called a liberal who is the darling of the West, a son of Macaulay and so on. Perhaps it is comforting for some of us to write off the entire English media in Pakistan for that very reason, not just Hoodbhoy. But what does that accomplish? How is that different from pulling wool over our eyes?

https://www.dawn.com/news/1347492/plain-truths-about-the-economy

Riaz Haq said...

Ahmad F: "Plain Truth about the Economy is a perceptive and analytical piece in Pakistan's Dawn newspaper by a former World Bank economist Anjum Altaf."

I'm amazed at Anjum Altaf's sheer ignorance about per capita income levels for Pakistan and how to interpret them.

Pakistan's PPP GDP per capita is about $6,000 and the purchasing power parity conversion factor is Rs. 30 per dollar that translates into Rs. 180,000 per year or nearly Rs. 15,000 per month per person. For a household of 4-5 people, it comes to Rs. 60,000 to Rs. 75,000 per household.

He also doesn't seem to understand that the minimum wage is not per capita for the entire population but per worker. Being demographically a young country with low percentage of female employment, the workers make up less than 50% of the population. The average household income in Pakistan is about 6X minimum wage.

And going by median incomes, Pakistan is the most egalitarian country in its region.

http://www.riazhaq.com/2017/01/comparing-median-income-wealth-data-for.html

Ahmad F. said...

Also savor this piece "Economic Bullshit" by Anjum Altaf . By the way, he is a very qualified economist. Saying that he does not know basic economic concepts is a simple emotional reaction.

https://tribune.com.pk/story/1345408/economic-bullshit/

http://www.theigc.org/person/anjum-altaf/

Riaz Haq said...

Ahmad: "Also savor this piece "Economic Bullshit" by Anjum Altaf . By the way, he is a very qualified economist. Saying that he does not know basic economic concepts is a simple emotional reaction."

My responses are based on logical arguments backed by data. And I know BS when I smell it. And I see that Anjum Altaf is full it it.

A litmus test of the size of the middle class population and its growth in a developing country is what is happening in terms of standards of living as defined by access to things such as motorcycles, refrigerators, washing machines, etc .

This is what Dr. Jawaid Abdu Ghani, a professor at Karachi School of Business and former faculty at MIT Sloan and Wharton, did in a paper he published arlier this year. I discussed in a post I am sharing below:

http://www.riazhaq.com/2017/05/comparing-ownership-of-appliances-and.html

Riaz Haq said...

The Asian Development Bank (ADB) has agreed to enhance its annual lending to Pakistan to about $2 billion over the next three years, from presently less than $1.5 billion, subject to speedy readiness of project designs and procurement.

ADB agrees to increase annual lending to Pakistan to $2bn

https://www.dawn.com/news/1343664


to journalists after his meetings with the Finance Minister Ishaq Dar and the chief minister of Punjab, the Bank’s Vice President Wencai Zhang said Pakistan had requested an increase in its financing flows to more than $2.5bn.

He said that he is here for finalisation of the three-year Country Partnership, Strategy and Operation Plan for 2018-21 under which the ADB would continue to support infrastructure projects in transport and railways, including interconnection facilities with the neighbours including South Asia, Central Asia and South-East Asia.

He said the government wanted the ADB ‘to deliver funds more than $2.5bn’ per annum but depending on finalisation of projects the annual funding to the country would range between $1.8-2.1bn, depending on the processing time of the projects.
Mr Zhang said the ADB will also continue to work for reforms in the public sector entities and energy sector reforms, particularly in transmission and distribution network and energy efficiencies.

He added that the Bank is now looking with greater interest at the urban transport system and has recently approved $335m for Peshawar Bus Rapid Transport Project in collaboration with other international lending agencies and is examining to enter more transportation projects starting with Punjab.

A new area of interest for the ADB is the urban water and sanitation projects as part of integrated water management systems as a move on to financial inclusiveness through Public-Private Partnership, starting with a project in Sindh and then in Punjab.

He said the ADB was also exploring how it could increase its support for social sectors particularly in technical and vocational education for skill development of the youth and secondary health sector.

Responding to a question, he conceded the project preparation and approval process had been a cause of project delays, cost over-runs and delay in achievement of intended results that also involved commitment charges but added the ADB was improving its procedures and wanted the government to also streamline its project design, procurement and approval processes.

Riaz Haq said...

Pakistan refuses ADB loan for railway as China becomes sole financier

https://www.dawn.com/news/1329651

Pakistan has refused part financing from the Asian Development Bank (ADB) for the $8 billion Karachi-Peshawar Railway Line (ML-1) after China said it wanted to fund the project single-handedly.

“China strongly argued that two-sourced financing would create problems and the project would suffer,” Minister for Planning and Development Ahsan Iqbal told a news conference on Thursday.

The minister said he would not comment whether the Ministry of Railways has resisted the Chinese request for fears of monopoly, but said the entire financing would now come from China. The project was originally planned to be partly funded by the Manila-based ADB.

He said the ADB would be accommodated in some other projects, such as those under the Central Asian Regional Economic Cooperation programme.

Under the original plan, the ADB had to provide $3.5bn for the 1,700-kilometre-long line considered the backbone of the country’s logistics connecting two major ports with the rest of the country for transporting goods and passengers.

The minister said the Chinese government therefore wanted that the project financing should be kept single-sourced. Pakistan and China are expected to sign a formal agreement in this regard next month.

Mr Iqbal said the Planning Commission was making efforts to maximise allocation of funds for the next year’s development programme as it would be the final year of the current government. Therefore, the government would like to complete maximum number of projects during this period so as to support the growth momentum.

He said it was also important to have larger development portfolio for the next year because it would trigger activity in the construction industry on which a number of other growth-oriented industries were dependent because of its potential to create jobs.

“But we also have to balance ways and means,” he said, adding that the Planning Commission demanded Rs1 trillion for the of next year’s public sector development programme (PSDP), but the finance ministry has put a ceiling of Rs700bn.

He said the finance minister and the prime minister would be requested to increase development allocations. The minister said the annual plan coordination committee would meet on May 17 to finalise next year’s development programme. And for a formal approval, the Planning Commission has proposed a meeting of the National Economic Council on May 21 or 22, depending on prime minister’s availability.

Riaz Haq said...

Nigel: "Biggest benefit in GDP growth comes from "neighbourhood trade". Pakistan has nearly closed links with its neighbours. Even if firms decide to set up shop in Pakistan trade with bigger India is shut off. Many Euro firms use NAFTA infrastructure in Mexico to ship goods to the US for example."

Pakistan sits between two economically very dynamic regions: Central Asia (and Western China) and South Asia. Which region is better suited for its economic connectivity and integration? Should Islamabad focus on CAREC (Central Asia Regional Economic Cooperation) rather than SAARC (South Asian Association of Regional Cooperation)?

Ideally, Pakistan should be a major player in both vibrant regions. However, Indian Prime Minister Narendra Modi's policy of attempting to isolate Pakistan has essentially forced it to choose.

First, Mr. Modi decided to boycott this year's SAARC summit that was scheduled to take place in Islamabad, Pakistan. Then, he unsuccessfully attempted to hijack the BRICS economic summit in India to use it as a political platform to attack and isolate Pakistan. The signal to Pakistan was unmistakable: Forget about SAARC.

Central Asia Regional Economic Cooperation (CAREC):

CAREC is a growing group of nations that is currently made up of 11 members, including China and a list of STANs. The current membership includes Afghanistan (joined CAREC in 2005), Azerbaijan (2003), People's Republic of China (1997), Georgia (2016), Kazakhstan (1997), Kyrgyz Republic (1997), Mongolia (2003, Pakistan (2010), Tajikistan (1998), Turkmenistan (2010) and Uzbekistan (1997).

http://www.riazhaq.com/2016/11/pakistans-regional-economic-integration.html

Riaz Haq said...

Big Power for Little #SriLanka in the #India-#China Rivalry. #Bhutan #Nepal #Doklam #HambantotaPort #Pakistan #CPEC
https://worldview.stratfor.com/article/big-power-little-sri-lanka-india-china-rivalry

When it comes to this periphery, one particular concern for New Delhi is Sri Lanka's Hambantota deep sea port project. This new port and others at Gwadar in Pakistan, Chittagong in Bangladesh and Djibouti constitute the Indian Ocean leg of China's 21st Century Maritime Silk Road. And ever since construction began in Hambantota in 2008, China has taken on an increasingly prominent role in the project, which includes not only the $1.4 billion port but also an airport, numerous highways and an as-yet-unbuilt 15,000-acre industrial zone. Initially, Sri Lanka intended to build the project with massive Chinese loans and operate the port on its own, but it has confronted the difficulty of making the port profitable. Thus, in late 2016, Colombo announced a potential deal to trade an 85 percent stake in the project, which would include a 99-year lease on land there, to China Merchants Port Holdings in exchange for $1.1 billion in debt relief. Sri Lanka is $8 billion in debt to China, and over one-third of its government revenue goes to servicing that debt.


Domestic tensions over India's involvement in Trincomalee will only continue. And ultimately, the revised deal with China over Hambantota will not end competition over Sri Lanka and its ports. After the tumultuous conclusion of the Sri Lankan civil war in 2009, the country was left internationally isolated and at odds with India. New Delhi notably did not offer Colombo substantial assistance in defeating the Tamil Tigers, and Sri Lanka instead relied on Chinese, Pakistani and Iranian involvement. In the wake of these events, restoring a balance between patronage from India and other nations does not mean Colombo will be making a full tilt toward New Delhi. Moreover, India simply does not have the economic heft or state control of businesses needed to assist Sri Lanka in the way that China does.

On a broader scale, the regional rivalry between China and India grows ever stronger, as the two nations push for dominance over their shared border and India's various neighbors. But direct military confrontation between Beijing and New Delhi is extremely unlikely, and the tensions will instead play out in nearby countries. Bhutan, for example, has already been caught up in this rivalry with the ongoing Doklam Plateau crisis. East Africa, too, has become the target of an early stage Indo-Japanese attempt to counterbalance China's infrastructure initiatives. For its part, Sri Lanka appears to have used its political savvy to square the circle for now, but the country will no doubt remain involved in the affairs of India and China in the future. And while being sandwiched between two great powers can be a precarious position for a small nation like Sri Lanka, the country has proved itself adept at playing these powers off one another for its own benefit.

Riaz Haq said...

CPEC to create trading bloc of three billion people


https://www.thenews.com.pk/print/218706-CPEC-to-create-trading-bloc-of-three-billion-people


CCIEE Chief Economist Ms Wenling Chen, who was keynote speaker, showcased the CPEC as key example of what BRI stood for and frequently referred to the game-changer while explaining BRI to participants of the roundtable. She cited CPEC as an excellent example of intergovernmental coordination.

She highlighted the role of OBOR in global economic integration, explained the driving forces and objectives of BRI, underlined the interaction and mutual support between BRI and other components of global trade governance and how BRI can strengthen and guard multilateral trading system.

Ms Wenling Chen said BRI is for cooperation, peace, and mutual benefit of all the 60 plus countries involved in this initiative. She said OBOR is about connectivity, quality intra-governmental coordination, infrastructure development, trade, investment, global supply chains, financial integration and ultimately for elimination of poverty and development of whole region and 2 world at large.

While commenting on BRI, Dr Tauqir Shah gave Pakistan’s perspective on the CPEC as an early harvest component of BRI. He said OBOR is immensely important for the Global economy and critically significant for Pakistan.

“The CPEC, a US $54 billion initiative, has all the vital elements of economic development like - transport, highways, railways, ports, urban metro, industrial parks, information technology, last but not the least energy - considerable part of this is renewable energy.”

The ambassador said the CPEC is proving to be a game-changer for Pakistan and the region, and will be a bridge between three engines of growth, - China, South Asia and Central Asia.

While highlighting economic significance of CPEC for Pakistan, he said the country had a four to five thousand MW energy deficit in 2013, which is 25% of its total generation capacity; and it was costing us 2% of GDP growth. “This development deficit needed an initiative of “Big Bang Scale”, like - CPEC. It is a set of 55 projects - 75% of funding is for providing 17000 MW of energy, over next ten years. This includes solar, hydro and Wind energy projects, many of these being foreign direct investment of Chinese private sector.”

Dr Tauqir Shah said the CPEC has created opportunities for everyone. The solar and wind energy projects have wind turbines and other components from Europe. “Our solar projects have consultants for quality assurance from Germany. During 2016, exports from Europe to Pakistan increased by more than 20%, from US $4.2 billion to $5.2 billion, primarily due to increased economic activity resulting from infrastructure development through CPEC.”

Citing another example to show the impact of CPEC on economy, he said that spurred by the CPEC infrastructure projects, Pakistan’s cement industry is expected to increase its capacity by 56 % to 70 million tons in next five years; Pakistan’s cement sector profitability grew 17pc in the last one year on account of higher domestic demand - credit to the construction sector as of Dec 2016, increased by 26pc.

The ambassador said the speedy implementation of the CPEC and the economic stimulus brought about by it has led to increase in demand of cement across Pakistan. Majority of existing cement plants in Pakistan are expanding, and licenses to set up 10 new plants has been given to foreign investors—mostly foreign direct investment.

He said that the hallmark of the CPEC is the north south highway and rail link, designed to link Arabian Gulf coast of Pakistan at Gwadar in south, to north western Chinese region of Xinjiang and Kasghar, thus reducing the distance of China’s northwest from Arabian Gulf from 14000 kilometers to 2500 kilometers, transforming the trade cost for whole region. “We firmly believe the CPEC will result in increase in trade, investment and financial flows, bringing peace and prosperity to the region and even beyond.”


Majumdar said...

After reading about Sri Lanka's Hambantota, do you think CPEC is a great idea? What say, Brofessor sb? Regards

Riaz Haq said...

Majumdar: "After reading about Sri Lanka's Hambantota, do you think CPEC is a great idea? What say, Brofessor sb?"

Pakistan and Sri Lanka situations aren't comparable in terms of the debt-to-gdp ratio, size of the economy and the market etc.

Read this Forbes story:

Sri Lanka's Debt Crisis Is So Bad The Government Doesn't Even Know How Much Money It Owes

https://www.forbes.com/sites/wadeshepard/2016/09/30/sri-lankas-debt-crisis-is-so-bad-the-government-doesnt-even-know-how-much-money-it-owes/#492703854608

Trying to develop its infrastructure to increase its economic potential has plunged Sri Lanka deep into a pit of debt, pushing the country to the brink of bankruptcy and prompting an IMF bailout.

The official estimate of what Sri Lanka currently owes its financiers is $64.9 billion — $8 billion of which is owned by China. The country’s debt-to-GDP currently stands around 75% and 95.4% of all government revenue is currently going towards debt repayment.

This debt situation is clearly not sustainable, but there’s more:

In addition to racking up large amounts of government debt via the usual channels, it's now becoming evident that the previous government also utilized state-owned enterprises to take out additional loans on its behalf. While the full extent of this extracurricular lending seems unknown, current estimates peg it at a minimum of $9.5 billion — which is all off the books of the finance ministry.

“We still don’t know the exact total debt number,” Sri Lanka’s prime minister admitted to parliament earlier this month.

Much of Sri Lanka’s pile of debt accrued in the process of initiating an entire buffet of large-scale and extremely expensive infrastructure projects under the direction of former president Mahinda Rajapaksa.

Between 2009 and 2014 Sri Lanka’s total government debt tripled and external debt doubled, as the country engaged in a number of costly undertakings -- such as attempting to build a new, multi-billion dollar city in the middle of a jungle (which includes the world’s emptiest international airport), constructing one of the most expensive highways ever made, as well as other pricey endeavors, such as spending $42 million just to remove a rock from the harbor at Hambantota.

But this doesn’t necessarily mean that Sri Lanka's current administration is doing much better. Under President Maithripala Sirisena and Prime Minister Ranil Wickremesinghe, who came to office at the beginning of 2015, domestic debt grew by 12% and external debt by 25% without starting any new large-scale infrastructure projects.

This fact has not gone unnoticed by former president Mahinda Rajapaksa, who recently issued a series of public taunts, claiming that with the money the current administration has so far borrowed he could have built “two Mattala Airports, one Hambantota Port, one Norochcholai Coal Power Plant, one Colombo-Matara Highway, one Colombo-Katunayake Highway, not one, but two Colombo Port cities and one 500 MW Sampur Coal Power Plant...”

Sri Lanka may be in a debt trap that it can’t get out of. This year alone $4.5 billion is due to foreign lenders and next year $4 billion is owed — bills which the country has not yet figured out a way to pay.

Various interim solutions to the debt crisis have been proposed, such as offering debt-for-equity swaps to countries, such as China, that Sri Lanka owes big and privatizing and outright selling loss-incurring SOEs, which have yet to receive much interest.

The IMF did agree to provide Sri Lanka with a $1.5 billion bailout in the form of a loan in April after the country agreed to a set of criteria to attempt to right the course of its wavering economy. However, as reported by East Asia Forum, Sri Lanka’s Central Bank has stated that it is their intention to secure an additional $5 billion in loans after receiving these funds -- and corresponding seal of approval -- from the IMF as the debt trap continues getting deeper.

Riaz Haq said...

5 Most Profitable Business Sectors in Pakistan:

https://www.researchsnipers.com/5-profitable-business-sectors-pakistan/

Pakistan business sector is growing fast, a country with 193.2 million estimated population in 2016 has shown strong growth in the past five years which is expected to grow further. A study published by Harvard indicates that Pakistan’s economic growth will surpass China’s in the next 20 years, growth statistics and current development in the country including China Pakistan Economic Corridor CPEC attracts more businesses to invest in Pakistan from across the globe. Recently, France, United Kingdom, Turkey and China has shown special interest to start bilateral trade with Pakistan and private sector companies from these countries are also leapfrogging to make considerable investments in Pakistan.



Despite, these are many sectors in Pakistan that are underdeveloped but these five sectors including; FMCG, Chemicals and Fertilizers, Automotive, Textile and Energy/Petroleum are the most growing and profitable in Pakistan.

The data acquired from Karachi Stock Exchange KSE from 2013 to 2017 indicates that top companies who performed well are from the above five sectors. The companies witnessed strong growth and profitability over the four years.

1 FMCG

FMCG is the most lucrative and huge business sector in Pakistan, companies that are consistently growing and becoming more profitable includes; Colgate Palmolive, Unilever, Nestle and Engro Foods. The market is huge and still in growing stage whereas industry has few multinational players covering the whole market.

2 Chemicals and Fertilizers

“Chemicals and fertilizers” is another big sector which caters even bigger market, companies like ICI Pakistan, Fauji Fertilizer, Engro Fertilizers and Chemicals, Abbot, Lucky Cement and some other are dominating the market with strong growth over time and profitability.

3 Automotive

The automotive industry in Pakistan forms oligopoly, global players like Toyota, Honda and Suzuki dominates the market. However, Pakistan has allowed other automakers to setup car assembly plants in Pakistan, increasing disposable income and the transport needs in the country make the market more attractive, potential and profitable.

4 Textile

Pakistan’s textile industry is popular in all over the world; however, due to lesser facilities and government support Pakistan is not able to streamline its textile growth but the textile industry accounts for 57% of the country overall exports. There are several companies in this sector including Premium Textile and Din Textile that are quite lucrative.

5 Energy/Petroleum

Where there are people there is a need for energy in all segments of life whether you are at home, traveling, working, playing and having leisure energy and petroleum products are inevitable, Pakistan’s energy and petroleum needs are growing rapidly, it is estimated that Pakistan’s energy needs will surpass 50,000 MW by 2025. Petroleum and energy sector in Pakistan is expected to grow further and become more profitable in the future.

Anonymous said...

Government debt as share of GDP. Japan: 250% India: 70%
Pakistan: 66% Vietnam: 62% China: 46% Philippines: 42%
S Korea: 38% Indonesia: 28%

Riaz Haq said...

#Pakistan #auto sales stay buoyant as volumes rise 14% in 10 months July 2016-April 2017

https://tribune.com.pk/story/1407581/local-auto-sales-stay-buoyant-volumes-rise-14/

Local automobile sales, including light commercial vehicles (LCVs) and jeeps, in the first 10 months (Jul-Apr) of the current fiscal year totalled 176,937 units, up 14% compared to 154,949 units (excluding Punjab taxi scheme sales of 29,150 units) in the same period of previous year, according to data released by the Pakistan Automotive Manufacturers Association (Pama).

Auto industry seeks tax relief at retail stage

“Car sales remained robust and are expected to touch 270,000 units (including 60,000 imported cars) by the end of fiscal year in June 2017,” Topline Securities commented on Thursday.

Imran Z said...

Are these conjectures or based on evidence based research (I mean increased exports to pay obligations back in $$$) ?

Riaz Haq said...

Imran: "Are these conjectures or based on evidence based research (I mean increased exports to pay obligations back in $$$) ?"

Economics is not an exact science. There's no such thing as a "one handed economist". However, these are educated guesses and analyses by eminent economists like Dr Ishrat Husain https://www.dawn.com/news/1313992/financing-burden-of-cpec

Riaz Haq said...

#IMF says #CPEC outflows from #Pakistan to peak at $4.5 billion in Year 2024

https://www.dawn.com/news/1345414

In a detailed look at the China-Pakistan Economic Corridor (CPEC), the International Monetary Fund (IMF) cautions that corridor projects will generate outflows of as much as $4.5 billion by 2024, while the export benefits of the projects “will likely accrue gradually over time”. Filling the gap in between could pose a policy challenge.

“These considerations warrant policymakers’ attention to two priority areas in order to realise the transformational potential of Pakistan’s investment programme while maintaining external stability,” the IMF report says.

The first challenge is to ramp up export revenue and build foreign exchange buffers, which “will be important to cushion the period of increased BoP outflows”. Ramping up exports will require “improving competitiveness and the business climate” in order to realise the potential benefits from the increased energy supplies and transport infrastructure that the corridor projects will create.

The second big challenge is bringing “full cost recovery” in power distribution. “Routing the increased generation capacity through a loss-making distribution sector could result in faster accumulation of circular debt and fiscal costs, as well as undermine long-term financial sustainability of the new energy projects,” the report adds.

The report stops short of advocating a specific path for improving recoveries, but points towards greater private-sector participation in metering and recoveries while “maintaining a strong and enabling regulatory framework”. The language could be aimed at the government’s proposed reforms to the Nepra Act that seek to parcel out many of the powers the regulator currently enjoys to the federal and provincial governments and their departments.

The report also cautions against going too far down the road of granting incentives to certain categories of investor. It urges the government to “rationalise and limit tax incentives and exemptions [and] maintain uniformity of the tax regime with respect to all investments” and ensure that new external commitments are in line with expected balance of payments trends.

The report notes the positive impact that CPEC projects can have on Pakistan’s economy. It says the direct impact of corridor projects on GDP will go from $2bn in 2017 to $4bn by 2024. By that point in time, the indirect, second-round impacts could commence, which could be “significant” but “will depend on many other supportive factors.”

The report notes that the investments coming under the early-harvest scheme could close Pakistan’s power deficit as 8,600MW are envisaged to be commissioned under CPEC over the next seven to nine years, out of a total capacity expansion of 24,000MW currently in the investment plan. “[T]his expansion will help eliminate Pakistan’s deficit of about 6GW in 2016 to a surplus as early as end-2018.”

Riaz Haq said...

Pakistan ranks 52 among 79 countries ranked by WEF for inclusive development, ahead of India at 60 but behind China at 15 and Bangladesh at 36


http://www3.weforum.org/docs/WEF_Forum_IncGrwth_2017.pdf


Pakistan has lower inequality than India as measured by Gini coefficient.


http://www.indiatimes.com/news/world/india-ranks-60th-among-79-developing-economies-in-the-world-economic-forum-s-inclusive-development-index-269629.html

Riaz Haq said...

#China plans $4 billion petrochemical complex near #Karachi in #Pakistan #CPEC

https://www.dawn.com/news/1351945

A Chinese proposal to set up a refinery along with a downstream petrochemical complex near Karachi is advancing steadily as requests for 500-1,000 acres has been submitted to the provincial governments of Sindh and Balochistan.

The estimated cost of the project is about $4 billion.

This was disclosed by Federation of Pakistan Chambers of Commerce and Industry (FPCCI) President Zubair M. Tufail after a meeting with the visiting Chinese delegation, led by Ms Li-Jial, Director Tianchen Engineering Corporation (TCC), at the Federation House on Wednesday.

Ms Li-Jial and Mr Tufail agreed in principle to establish and exchange investment missions to further enhance trade relations between the two countries.

The Chinese asked for land in Karachi since they found rents in Gwadar Free Zone to be too expensive, Mr Tufail told Dawn. “Port Qasim does not have enough space for a project of this size,” he said. “So they have asked for land a few kilometres away or in the Hub area, which falls in Balochistan

They will go with whichever provincial government best facilitates their interests, Mr Tufail added. “Any of the two provincial governments give better deal they would go for it and this would be a win-win situation for both the countries.”

Mr Tufail said both the provincial governments are interested in this project but would depend how they make a land deal with the Chinese investors.

The complex envisions a number of jetties, a refinery with 10 million tonnes per year capacity, as well as downstream processing facilities for naphtha and its component chemicals. “Currently we are importing $2bn worth of these chemicals from the Middle East” Mr Tufail said, adding that the complex could help reduce Pakistan’s external deficit.

Building of the complex will take four to five years, he said, “since they’re starting from scratch”.

Talks on the proposal have been under way for over a year now, but the proposal has begun to take shape more recently with the formal submission of a request for land.

Ms Li-Jial speaking on the occasion said that TCC would like to invest in Pakistan to enhance investment opportunities.

“Over the years, China had been extending cooperation in different sectors of the economy in Pakistan and lately there had been a sudden jump in these relations for the mutual benefit of both countries,” she added.

The FPCCI president said that Pakistan could benefit from the TCC’s vast experience in oil refinery, energy, chemical complexes and other projects and explore investment opportunities mutually beneficial to both the countries.

Riaz Haq said...

#CPEC provides avenues for #Pakistan to get a big slice of $100 billion #China's food imports

https://tribune.com.pk/story/1484291/cpec-provides-avenues-target-100b-chinese-agri-market/

The China-Pakistan Economic Corridor (CPEC) is a golden opportunity for overall development of this region and Pakistan should reorganise its agriculture sector to get a major slice of the $100 billion worth of agriculture produce imports by China, suggested Muhammad Mehmood, Punjab Agriculture Secretary.

Speaking at the launch of a study on “CPEC – Prospects & Challenges for Agriculture”, Mehmood pointed out that nearly one-fourth of the world’s population was living in China and most of its exports would be routed through Pakistan after the completion of CPEC. “Containers full of exportable surplus will be sent to various international markets, but on their return, these containers will be empty and we must capitalise on the opportunity to export our surplus agriculture produce to China,” he said.

Mehmood revealed that per capita income of China was increasing substantially, bringing a visible change in people’s lifestyle and food habits there. “Like other affluent societies, they also prefer rich and costly food and fruits,” he said, adding Pakistan could get maximum benefit of the emerging change.

“We are concentrating on high-value crops and a 10-year programme has been evolved to develop one lakh acres of land in the Potohar region for planting grape and other high-value crops.”

Major Chinese importers will also be invited to utilise this land for growing high-value fruits in addition to developing the agriculture processing industry on modern scientific lines.

“Its trickle-down effect will provide an opportunity to our farmers to upgrade their technologies and develop agriculture as a profitable business by shunning centuries-old practices,” Mehmood said.

He told the audience that foreign consultants had been engaged to analyse why Pakistan had not been able to get its due share in Chinese imports despite its friendly relations and close proximity.

He suggested that Pakistan should renegotiate the bilateral trade agreement and a meeting was expected in the current or next month. After that, “we would be in a position to decide which strategy is suitable for Pakistan to enhance its share in Chinese imports.”

Responding to a question about a research project on the China-Pakistan agricultural technical cooperation, the agriculture secretary insisted that the Punjab Agriculture Research Board was extending liberal grants to the viable projects planned by the public and private sectors.

“Initially, Rs259 million had been allocated for this purpose. The funding was immediately increased to Rs750 million and it would be further enhanced to Rs3 billion in the next three years,” he said.

He asked the Faisalabad Chamber of Commerce and Industry president to send the project to the research board where a group of experts would review its viability and approve the requisite grant.