Pakistan’s economy is heading for a crisis like Sri Lanka’s
Pakistan’s economy is like a ticking time bomb. Factors that caused Sri Lanka’s economic crisis also had a big impact on Pakistan, whose economy is also in trouble.
Pakistan has a large amount of debt, high inflation, a spike in unemployment, and a lot of other macroeconomic problems, which clearly show the multiple challenges faced by the country, according to Muhammad Hamza Qamar.
Other similarities between Sri Lanka and Pakistan include the fact that they both rely on imports for essential goods, have limited foreign exchange sources, cannot engage in free trade, and have a lot of debt.
From a critical point of view, China-Pakistan Economic Corridor (CPEC) is built on a loan of USD 46 billion (now USD 55 billion) that Pakistan received from China.
Qamar said that these investments were supposed to get a 17-20 percent Rate of Return in dollar terms on their equity (only the equity part, not the entire project cost), with an expected debt-to-equity ratio of 80 percent to 20 percent.
The same can be said about Pakistan, where the country’s total debt, which doesn’t include debt from CPEC, is around USD 72 billion or close to 70% of GDP, and the current account deficit has increased to around 120% Daily Parliament Times.
With CPEC, Pakistan will have to pay 7-8 billion dollars as an EMI over the next 43 years. This amount will start in 2018 and continue each year after that. The interest rate will be 7 percent, and Pakistan will have to pay this amount each year for the next 43 years.
Qamar said it appears impossible for the nation to pay back both the principal and interest.
Other revelations include the terms of the contracts for investment in CPEC are one-sided, including the condition that no-bid contracts be awarded to Chinese companies. Chinese vehicles have an exemption from toll tax and preference for the Chinese workforce.
The way China is behaving in Sri Lankan projects is similar to the way Pakistan has been behaving lately. The pipit’s not right to indulge in further loan programs, which are required to proceed with the CPEC project.