Data recently released has shown that foreign direct investment has not been forthcoming for a number of reasons ranging from the continued concerns of foreign investors in the country's security situation to a profound lack of adequate infrastructural facilities notably energy and other myriad problems including red-tapism. Given this scenario for China to pledge $ 35 billion over the next five years must be appreciated and one would hope that Chinese concerns vis-a-vis security for those Chinese citizens engaged in projects in Pakistan are appropriately dealt with.
It must be borne in mind that $ 35 billion would not be credited to the State Bank of Pakistan that would enable the government to show this as reserves as all project preparations, associated equipment and supervisory manpower are likely to be provided by the Chinese. Pakistan's contribution would be in mainly providing unskilled labour which, in itself, is expected to generate considerable employment opportunities given the scale of the envisaged projects.
It is unclear on what terms the Chinese would extend $ 35 billion for developing our infrastructure. In 2007-08 China extended $ 327.7 million at 3 percent interest with an amortization period of 15 years and in the subsequent year $ 800 million was extended at 0.5 percent with an amortization period of 10 to 15 years. During the second year of the PPP-led coalition government the Chinese extended $ 1.97 billion which declined to $ 213.7 million in 2010-11 and $ 851 million during the last year of the PPP government - at Libor plus 1.25 percent. The reason for the decline could well be the lack of absorption capacity and one would hope that this impediment is dealt with appropriately.
Traditionally, China's grant assistance has been small and peaked in 2010-11 at $ 249.5 million (no doubt in the aftermath of the 2010 devastating floods) and fell sharply to $ 20.7 million the next year. Thus it may be appropriate to assume that $ 35 billion would not be in the form of a grant and the rate of interest would, given the precedence set in the last two years, be Libor plus 1.25 percent. Pakistan in 2012-13 (July-March) owed $ 63.4 million to China as annual payment of principal amount and an annual interest of $ 70.7 million or in sum total Pakistan government was to pay $ 134 million to China during the first nine months of the year as its debt obligations, according to the Economic Survey 2012-13.
However whatever the terms and conditions at which the $ 35 billion is to be made available the fact remains that the infrastructure, as and when developed, would have the potential of generating considerably higher income as well as employment opportunities in the country and therefore must be fully supported. And if one sees it in the context of insignificant foreign direct investment inflows at the present state of our economy the Chinese pledge must be all the more appreciated.