Published On: Sat, May 13th, 2017

Pakistan expects up to 4% of global trade to pass through Gwadar by 2020


global trade to pass through GwadarPakistan’s debt and other repayments on China’s “Belt and Road” initiative will peak at around $5 billion in 2022, but global trade to pass through Gwadar will be more than offset by transit fees charged on the new transport corridor says the Pakistan government’s chief economist.

China has committed to invest up to $75billion in Pakistan’s road, rail and energy infrastructure with its vast and modern Silk Road network of trade route that connects Asia with Europe and Africa.

The Gwadar port’s finished operations and motorways’ completion will boost trade between the two countries, the goods will be coming to and from Himalayas and China’s western Xinjian province.

The flagship of China-Pakistan Economic Corridor (CPEC), Belt and Road project, will help revive Pakistan’s economy. However, the Pakistani currency could come under immense pressure when Chinese firms start taking their share of profits home and debt repayments begin.

Nadeem Javaid an advisor to Pakistan’s current government and a close source to CPEC program, said that such reservations would be of no importance as the capital, Islamabad, will earn majorly from charging vehicles traveling to and from China.

He added that Gwadar-Xinjiang corridor should be operational from June next year, and Pakistan expects up to 4 per cent of global trade to pass through it by 2020. The kind of toll tax, rental fees that the Pakistani system will gain is roughly $6-$8bn a year. China has huge incentives to transport oil and other goods bound for its western regions through Pakistan as the Gwadar-Xinjiang corridor shaves some 15,000 kilometres off other traditional routes. So there’ll be savings on many million litres of fuel as well.

Chinese officials have urged Pakistan to improve security, and Islamabad now restricts movement of foreigners to its vast western Baluchistan province that will host a key transport artery. The only threat to this program could be a situation where the security conditions start deteriorating.

Investors, too, are watching Pakistan’s ballooning current account deficit, which widened by more than 160pc to $6.1bn in the nine months to March, largely due to imports of machinery for big CPEC projects.

Javaid said debt repayments and profit repatriation from CPEC projects will begin in 2019, totalling about $1.5-$1.9bn, and rising to $3-$3.5bn by the following year, it would be low in the beginning, and in 2022 it will peak at around $5bn — not more than that. The last such crisis in 2013 saw Islamabad turn to the International Monetary Fund for help.

Javaid said the CPEC should boost economic growth, which he expects to hit 5.2pc in 2016-17. Exports should also pick up once CPEC power projects totalling 7,000 megawatts come online and reduce often crippling energy shortages.

Deepening political and military ties between Pakistan and China have helped closer financial integration, too, with Chinese companies starting to buy Pakistani firms and land.

Javaid said the two countries have also discussed using a currency swap agreement between their central banks to create a mechanism to avoid any third currency in international transactions.

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- An enthusiast working in Dubai as an Assistant Operations Manager. Writing about Pakistan and the latest happenings, trends around the globe is my passion. A dreamer, learner and a major foodie.