Global insights with national implications: AidData’s policy engagements on the China-Pakistan Economic Corridor

The China-Pakistan Economic Corridor (CPEC) blurs the line between public and private debt, using loans and export credits from China to build public-private infrastructure projects, especially roads and power plants, that are intended to kickstart private industry, open market access in special economic zones, and catalyze export-led growth.

Although Chinese financing has helped Pakistan improve its national highway system and overcome crippling blackouts, the jury is still out on whether the CPEC will be considered a long-run success for the country’s economic transformation. Loan repayments on a nearly $20-billion energy portfolio—and Pakistani government-guaranteed dollarized returns on equity to Chinese and local investors (worth 17% and 34%)—could create major public financial management challenges, particularly as the country faces increasing political uncertainty this year and beyond. Every devaluation of the Pakistani Rupee against the US Dollar, such as the nearly 40% drop since August 2018, results in a ballooning of the country’s repayment obligations.

As of February 2022, the Pakistani government has enlisted over a dozen Chinese companies interested in major multi-billion-dollar investments in Pakistan’s special economic zones (SEZs). Moving forward, this will require local knowledge spillovers into empowered and well-resourced local institutions. To make good on these “spatial bets,” Pakistani planners need to create a clear vision, empower local governments, and pay more attention to the overall business climate.