Common sense would suggest that investments under the CPEC banner present an enviable opportunity for our economy to jump onto a significantly higher growth path on a sustainable basis. Is this logic and the envisaged gains valid allowing for the terms and conditions governing these ventures and the capability of Pakistan’s economy to exploit its potential?

The principal constraint in conducting a fair assessment of the latent returns to our economy from CPEC is the general opaqueness of the provisions driving these investments. Officialdom assures us that only a part of the funds are being provided in the shape of loans (and at affordable rates of interest). The rest of the financing is in the form of investments in energy and does not carry debt liabilities.

It can be argued, with some justification, that beggars are not choosers and these loans are on terms that are the best we could hope for under present conditions. But, if indeed they are (although warped domestic tax structures and distorted priorities make it difficult to raise and allocate resources for such investments) why are the details not in the public domain as is usual these days even in the case of a hitherto secretive institution like the IMF?

The concessions showered on the Chinese have surely set a benchmark other investors could demand.

Furthermore, how are the investments in the power sector logically different from a debt-related commitment, considering that the returns have been guaranteed by the government? What is the practical difference between these categorisations? From the information one has been able to glean, the guaranteed returns range from 17 per cent to 20pc in dollar terms on the investment/equity in the power sector (rising to more than 25pc if we add on all the exemptions granted on customs duties, both federal and provincial GSTs and other allied taxes).

Other special terms have also to be accorded. These include a three-month cash escrow for the electricity generated; they will have the right to suspend operations and still be paid if their payments are delayed. Whereas in the case of existing IPPs the National Transmission & Despatch Company can impose damages even if these units close down on account of non-payment for an extended period. The generous concessions (not available to domestic investors) showered on the Chinese have surely set a benchmark that other investors could validly demand.

These high guaranteed returns, complemented by our poor governance of the energy sector, will keep the price of energy high, affecting adversely the competitiveness of the economy in general and the exporting sectors in particular.

The cost per megawatt of these coal-based power plants has also not been shared to enable a comparison with international standards. This is important because, as explained, the returns are a guaranteed percentage of the equity, incentivising over-invoicing of imported equipment, enabling not just the recovery of the investment upfront but also furnishing a guaranteed return on this over-invoiced amount!

Another unknown is the cost per kilometre of road in highway projects. Market sources also claim that barely 25pc of the work has been outsourced to Pakistani engineering consultants and contractors. And they are being paid around 40pc of the cost for these services that the Chinese are being compensated for. Moreover, not only do they bring their own cement and steel but also their own labour (even of the unskilled variety on the plea that they speak Chinese); even paint produced by a multinational based in Pakistan is bought from the office of the same company in China.

In any case, as global experience tells us, connecting developed regions with those that are relatively backward doesn’t necessarily stimulate sustainable growth in the latter. The connectivity may well make it easier for capital and skills to flow to the more endowed regions because of better opportunities.

For the Chinese, the benefits of improved connectivity of their province of Xinjiang with the Gulf and beyond will come in the form of safe and secure connectivity to suppliers of energy in the Middle East and consumers in these and African markets.

What is uncertain is the impact that CPEC could have on our growth rate, given our weak global competitiveness owing to our deformed tax structure, poor governance and lack of skills. It limits our ability to integrate into Chinese-driven value chains. A greater worry would be the possible folding up of many of our businesses, not being competitive. As things stand, without a competitive industrial (perhaps even the agricultural sector), we may have to be content with, like the good ‘rentiers’ that we are, simply collecting toll taxes for our much-marketed ‘strategic location’.

Much of the CPEC-related discussion is around projects. But for achieving its objectives in a sustainable manner recurrent expenditure on repairs and maintenance is critical; these affect the economy’s efficiency. With large budget deficits and rigidity of expenditure, this requirement will pose formidable challenges.

Finally, given the precarious health of our external sector (with the current account deficit accumulating at a frightening billion dollars a month and the import bill programmed to increase by an additional $3bn by end 2018 on LNG/coal projects) and no visible signs of possible improvement, we would, as night follows day, be negotiating a new IMF programme, latest by the second half of 2018.

The outcomes of these deliberations could introduce an intriguing twist to our strategic policies for the region as we seek funding to service our debts and commitments under CPEC — with a dreaded currency mismatch resulting from most earnings in rupees servicing dollar liabilities.

Lest we forget, the IMF has no currency of its own, nor does it manage one. It essentially lends in US dollars which is also the currency for discharging CPEC-related obligations. If political analysts are right in asserting that the Americans are not happy with our Afghan and regional policies and our attempts to get closer to the Chinese, will their monopoly over their currency and their clout in the Fund provide them a leverage beyond just a role in the finalisation of IMF conditionalities?

The writer is a former governor of the State Bank of Pakistan.

Published in Dawn, July 17th, 2017