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"China comes with a lot of money and says you can borrow this money. But, you must think 'How do I repay'. Some countries see only the project and not the payment part of it. That's how they lose chunks of their country. We don't want that". This is the signed statement of Dr Mahathir Mohammad, the Prime Minister of Malaysia. Dr Mahathir Mohammad was sworn in as prime minister of Malaysia after his shock election victory, 15 years after he stood down. The former strongman has become, at 92, the world's oldest elected leader.

He came out of retirement and defected to the opposition to take on and beat former protege Najib Razak. His historic win ousted the Barisan Nasional (BN) coalition, which has been in power since independence in 1957. The thought of Dr Mahathir reflects that of a truly visionary and a nationalist statesman rather than a politician's whose vision is limited to vote politics and till the next elections.

The debt trap which the Malaysian leadership refused to get into -Pakistan's leadership readily walked into it under the guise of 'A game changer for Pakistan'. Loan against a project is a viable option if the project feasibility takes into consideration all the risk factors and a guaranteed rate of return on the investment.

The mega projects being undertaken in Pakistan under the CPEC are long-term projects demanding highly professional project management. The execution part in Pakistan is challenging resulting in time and cost overruns and in most of the cases at levels which threaten projects' viability to make enough margins to repay the loans and retain money for its operations. It is this looming threat which adds to short and long-term threats to our economy and sovereignty.

The China-Pakistan Economic Corridor (CPEC) is time and again being termed as a game-changer for the country. Little do we realize that it could also be a debt pit for Pakistan if not managed properly.

The CPEC, which started off as a $46 billion money availability under the regime of Eximp Bank of China, is presently valued at $62 billion. A large part of it is loans against projects whereas very little is Foreign Direct Investment. This amount is almost double the aid Pakistan has received from the US in the last decade-and-a-half.

The spectrum of loans under the CPEC is spread across multiple dimensions - including infrastructure, energy, water, transportation and safety and security etc and the stakeholders are both in the public and private sector.

Projects under the private sector like hydro and thermal power plants and Industry in Special Economic Zones have a better loan payback chances than the infrastructure and social projects in the public sector largely under public - private partnership.

A report by the International Monetary Fund (IMF) estimates that by the year 2023-24, Pakistan will have to pay approximately $3.5 billion to $4.5 billion per annum.

Asian Development Bank very closely monitors the economic and political dynamics of Pakistan. At the 51st Annual Meeting of the Board of Governors, Asian Development Bank (ADB) President Takehiko Nakao said the Pakistan has progressed. But he also had words of caution for the over $300-billion economy.

"I have visited Pakistan two times, and there has been progress," Takehiko said during the meeting.

The GDP growth will hit a 12-year high at the end of the current fiscal year, according to official figures. From 4.1% in fiscal year 2014, GDP growth has surged to 5.8%.

But of concern is the fact that the growth has come on the back of massive debt, pointing to the need for sustainable returns if the trajectory is to remain positive. Pakistan's total debt has surged to Rs22.8 trillion as of December 2017, owing to loans under the China-Pakistan Economic Corridor (CPEC), borrowings to maintain foreign reserves and infrastructure, and floating Euro and Sukuk bonds.

Few weeks ago, at a Belt and Road conference in Beijing, IMF Managing Director Christine Lagarde stated that the Belt and Road Initiative (BRI) can provide infrastructure financing to countries, but it should not be considered "a free lunch".

She expressed concerns over the increase in global debt due to BRI, which would pose balance of payment challenges. This particularly holds true for countries that already have debt problems, including Pakistan. What began as an investment project of $46 billion has now grown to $62 billion. This means that over the next 30 years the country will be repaying billions of dollars. The IMF has already expressed apprehensions and warned the government of adverse implications.

Speaking on the issue, Nakao said that connectivity is important and the ADB is willing to cooperate but at the same time, economic reality and feasibility should be considered. "If we invest in borrowed money then we need economic return. If countries borrow too much without assessing economic viability it would cause issues in repayment.

"I agree with Christine Lagarde's concern. Owing to the presence of ideas like BRI, we should consider debt sustainability issues thoroughly," he stressed. Talking about the country's role in the global project, Nakao said that cooperation between Pakistan and China remains strong and if connectivity in the region is improving the business climate, then it is a positive factor.

Touching briefly on the energy crisis, the ADB chief stressed that there was a great need to address the six to eight-hour daily power outages that plague many regions in Pakistan.

He emphasised the need of a stronger policy, adding that he is aware of the upcoming elections and is watching the developments closely. "If it is possible, we are ready to provide policy-based lending or budget support in coming months."

CPEC for Pakistan is a challenge and should not be taken for granted as a game changer. Its tentacles are far sharper and deeper than perceived by Pakistan's leaders and entrepreneurs. The words of caution expressed by Dr Mahathir merits due consideration.

(The writer is former President Overseas Investors Chamber of Commerce and Industry)

Copyright Business Recorder, 2018

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