Fitch says CPEC debt concerns recede, political risks diminish

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KARACHI: Fitch ratings agency in its report said that the debt concerns relating to the China-Pakistan Economic Corridor (CPEC) projects will begin to recede on the back of improving transparency and diminishing political risks.

The rating agency in its latest report says, “… debt concerns surrounding CPEC projects to ease after financial details are released. In addition, we believe political risks associated with CPEC projects have diminished since the 2018 Pakistani general election. These factors will reduce overall risk profile of CPEC projects.”

The report also states that the CPEC will continue to support growth of Pakistan’s construction industry in the coming years, aided by China’s sustained push on project implementation.

Since the implementation of CPEC, a centrepiece of China’s Belt and Road Initiative (BRI), in 2013, the mega project has faced numerous challenges to many projects. Despite these challenges, 11 CPEC projects, branded as early harvest projects, have been completed thus far.

Despite significant media and political scrutiny of CPEC, this progress on projects underscores Beijing’s improving track record in project implementation and its commitment to infrastructure development in Pakistan.

Since the inception of CPEC, a total of 3240MW of capacity had been added to the Pakistan’s national power grid, accounting for more than 11% of the total installed capacity in the country.

The Multan to Sukkur section of the Peshawar-Karachi Motorway, a key CPEC project which broke ground in August 2016, is currently more than 80% complete and is slated for completion by August 2019.

The report further states that debt concerns relating to CPEC projects will begin to recede on the back of improving transparency. In December 2018, reports relating to the Pakistani government’s debt to China had been circulating in the media, with the amount purportedly to be in the region of $40 billion.

Pakistan’s Ministry of Planning, Development and Reform and the Embassy of China in Pakistan have since released statements clarifying the total value of the aforementioned 22 early harvest CPEC projects completed and under construction to be around $18.9 billion, of which around $6 billion of loans, representing 32% of total value, were provided by the Chinese government and will be repaid over 20-25 years from 2021 at an interest rate of around 2%.

From these statements, it has been noted an improvement in terms of transparency of CPEC projects, with China also providing a breakdown of the type of financing and the estimated investment for each CPEC project.

This transparency is a welcoming sign for Pakistan’s construction industry as calls for a greater level of openness over CPEC projects are now being addressed by authorities, Fitch report said.

It has maintained the real growth rate of Pakistan’s construction industry to average at 8.9% over the next 5 years. “We will adjust our forecasts to account possible positive ripple effects across the economy.”

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