PMLN's House of Cards built on borrowed money beginning to crumble?

[Mian]

2 Headlines Today:

Pakistan to borrow $600m from China
Pakistan has decided to borrow $600 million from China to boost its dwindling foreign currency reserves that have depleted by $1.7 billion since expiry of the International Monetary Fund programme.

It is the second time in the last three years that the Pakistan Muslim League-Nawaz government has decided to ask a friendly country to boost its foreign currency reserves. Earlier, Saudi Arabia had gifted $1.5 billion to Pakistan in two equal tranches in 2014.

https://tribune.com.pk/story/1322240/pakistan-borrow-600m-china/

Trade deficit widens 29pc
Pakistan’s trade deficit in merchandise rose nearly 29 per cent year-on-year to $17.428 billion in the first seven months of the current fiscal year because of falling exports and increase in imports.

The deficit stood at $2.957bn in January, a rise of 75pc compared to $1.688bn a year ago, the Pakistan Bureau of Statistics said on Thursday.

The drop in export proceeds, along with fall in remittances, has contributed to the rising current account deficit this fiscal year.

http://www.dawn.com/news/1313814/trade-deficit-widens-29pc

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BUT i guess the answer of everything is CPEC as you can see by all PMLN supporters comments on those news sites CPEC will fix everything including corruption and all the faults of our system.

Remember biggest trade deficit in Pakistan's history was last year which was about $18 Bn and this year within the 7 months the deficit is already $17 bn.

 

[Mian]

Calling our noora experts like [MENTION=131701]Mamoon[/MENTION] to please show us the light at the end of this tunnel created by your beloved Nawaz Shareef and his awesome brains like Ishaq Dar.

 

[cricketjoshila]

How will CPEC correct this?Majority of CPEC is loans.Pakistan will ofcourse make money from transit fees that China will pay to move stuff from Gwadar to China,except that what else will make money for Pakistan in CPEC?

 

[DW44]

How will CPEC correct this?Majority of CPEC is loans.Pakistan will ofcourse make money from transit fees that China will pay to move stuff from Gwadar to China,except that what else will make money for Pakistan in CPEC?

The most overlooked part of CPEC is the industrial corridor. There are 20 odd SEZs being developed alongside the infrastructure that gets most of the attention. While I have my reservations about overly generous terms for Chinese companies, if even half of what's being planned for the SEZs goes through, the windfall for the state will be substantial.

 

[cricketjoshila]

The most overlooked part of CPEC is the industrial corridor. There are 20 odd SEZs being developed alongside the infrastructure that gets most of the attention. While I have my reservations about overly generous terms for Chinese companies, if even half of what's being planned for the SEZs goes through, the windfall for the state will be substantial.

What kind of SEZ and what kind of industries are we talking about?

 

[Syed1]

How will CPEC correct this?Majority of CPEC is loans.Pakistan will ofcourse make money from transit fees that China will pay to move stuff from Gwadar to China,except that what else will make money for Pakistan in CPEC?

Off the close to $60 billion in total investment, around 30-40 billion is in energy projects alone which will benefit Pakistan and help us kick start our economy.

It is Indian delusion that CPEC is just a glorified road project and Pakistan will only be earning gate fees.

 

[cricketjoshila]

Off the close to $60 billion in total investment, around 30-40 billion is in energy projects alone which will benefit Pakistan and help us kick start our economy.

It is Indian delusion that CPEC is just a glorified road project and Pakistan will only be earning gate fees.

60bn isnt investment.There is a huge part which is a loan.Loans are not investment.

Energy Projects will kick start your economy.How?Unless you have huge industries which will use that energy to produce huge goods which can be exported or you have a huge internal market,Energy Projects wont kick start your economy.Afaik most of these projects are based on imported coal and have high per unit cost.Also these energy projects are based on loan.

I remember reading once that a very famous Indian economist was once told by a British in mid 90s that India would need to develop its infrastructure to become a fast growing economy.The Indian replied that Infrastructure will come up when there will be enough market and industry to use it.Developing economies cannot make huge infrastructure investments and laden themselves with debt and then wait for the market and industry to grow.Infrastructure development in India started in early 2000s.

It would have been better if they would have asked the Chinese to set up manufacturing units who can actually use the infrastructure.Then the port cn be used to export and taxes can be collected on manufactured goods.

 

[DW44]

What kind of SEZ and what kind of industries are we talking about?

Mostly industrial parks. Off the 29 that were proposed, 9 have been approved so far. Specific details are scarce since it's still in the early phases but textiles and other usual copy-paste growth stage industries look set to take center stage. Local chemicals, textiles and cement companies are acquiring ridiculous amounts of land there. At least one industrial park, in Raiwind near Lahore, is dedicated to Haier where they plan to make the full spectrum of consumer electronics. It was at a pretty advanced stage of development when I last visited the area in January 2016 so it's fair to assume it's even closer to completion. IT is another sector that is being targeted, with at least one IT exclusive SEZ financed by Korea confirmed in Islamabad. This, again, is the right way to go because the room for growth in that sector is massive given the size of the talent pool and the tiny degree to which it is currently being exploited.

60bn isnt investment.There is a huge part which is a loan.Loans are not investment.

Energy Projects will kick start your economy.How?Unless you have huge industries which will use that energy to produce huge goods which can be exported or you have a huge internal market,Energy Projects wont kick start your economy.Afaik most of these projects are based on imported coal and have high per unit cost.Also these energy projects are based on loan.

I remember reading once that a very famous Indian economist was once told by a British in mid 90s that India would need to develop its infrastructure to become a fast growing economy.The Indian replied that Infrastructure will come up when there will be enough market and industry to use it.Developing economies cannot make huge infrastructure investments and laden themselves with debt and then wait for the market and industry to grow.Infrastructure development in India started in early 2000s.

Technically, it's still investment, just not by the Chinese. Any money spent on developing infrastructure and industrial capacity is, by definition, investment and is counted as such when calculating GDP. China's own economic miracle is built on the back of debt fueled investment although their model has significant differences to Pakistan's, with theirs being by far the better of the two. As far as the question of how infrastructure and energy projects will kickstart the economy is concerned, it's not as simple as you're suggesting. Pakistan already has significant industrial infrastructure in place, a lot of which is operating so far below capacity due to energy shortages that even if that underutilized capacity is brought online, industrial production can be doubled in relatively short order. The bottleneck here is not capacity, it's energy so naturally it makes sense to plug that gap first and start with what's already there.

For a country at Paksitan's level of development, the textile industry is paramount to move labor from unproductive agriculture and informal services. Pakistan's textile industry exported about $11.6 billion dollars worth of goods, a figure that, for a country with a labor force as big and cheap as Pakistan's, can easily be raised four to five times by addressing the structural inadequacies such as lack of proper infrastructure, particularly power infrastructure. Similar issues plague other basic industries like steel, cement and chemicals. The steel industry is particularly well placed to benefit from all the infrastructure spending in light of the anti dumping tarrifs imposed recently on Chinese steel in Pakistan.

The Indian economist you quoted, if he actually said that, was an idiot. Even at India's current level of development, much less in the mid 90s, investment in physical capital takes priority over social capital because of how important the former is at early stages of growth. Pakistan's social capital is a joke and even then it's our physical capital that's more of a bottleneck despite Pakistan historically focusing a lot more on infrastructure than India. Not only can developing economies afford to make large investments in infrastructure, they absolutely must if they intend to transition to a higher level of development. That said, this works best when investments in industrial capacity and infrastructure are made simultaneously because if either one of the two is lagging behind the other significantly, it creates a bottleneck for both.

It would have been better if they would have asked the Chinese to set up manufacturing units who can actually use the infrastructure.Then the port cn be used to export and taxes can be collected on manufactured goods.

They have and the Chinese are.

 

[waqar goraya]

As the discussion revolves around CPEC I should also mention here that many industrialists are afraid of being over run by Chinese manufacturers, because of tax waivers and other amenities given to the Chinese.