ISLAMABAD: The IMF has warned Pakistan that China 's growing investments in the country, including the $46 billion economic corridor, have the potential to lift the cash-strapped economy's potential output, but the repayment obligations that come with it will be serious. "Pakistan will need to manage increasing CPEC-related outflows," warns the IMF, once the Chinese investors begin repatriating profits, adding that the amounts involved "could add up to a significant level given the magnitude of the FDI".Outflows will also come in the form of repayment obligations on the loans taken from Chinese banks for these projects, which are expected to rise after 2021. Both of these, repayments and profit repatriation, "could reach about 0.4 per cent of GDP per year over the longer run".The IMF acknowledges that CPEC related growth could cover these payments over the longer term, but warns that this is not guaranteed. "Reaping the full potential benefits of CPEC will require forceful pro-growth and export-supporting reforms" the report says, citing improved business climate, governance and security as necessary preconditions to enable CPEC investments to generate the resources required to cover their own associated outflows. It calls for "sound project evaluation and prioritisation mechanisms based on effective cost-benefit analysis and realistic forecasts of macroeconomic and financing conditions" to help mitigate the risk.It points out "a need to ensure transparency and accountability in project management and monitoring", pointing specifically at the power purchase agreements being signed with Chinese IPPs, calling on the government to ensure that the cost of power purchase "remains favourable" for the distribution companies and consumers.

Source: Economic Times October 17, 2016 13:41 UTC