Poor FDI; poorer transparency

At less than one percent of the GDP, the 2.4 percent year-on-year increase in net foreign direct investments (FDI) in 10MFY18 cannot really be termed as ‘growth in FDI’. The FDI as percentage of GDP, as per the central bank’s 9MFY18 estimations, was about 0.88 percent, which is even lower than FY17’s figure of 0.90 percent – not that FY17’s picture was rosy anyway.

With the so-called economic turnaround, Pakistan attracted a total of $5.1 billion between FY14 and FY16, according to UNCTAD data. By comparison, India attracted $123 billion, Bangladesh $6.1 billion and the sanction-hit Iran $7.5 billion. (Note: UNCTAD data is used here for comparability sake; all other Pakistan’s data cited are from SBP unless otherwise stated. UNCTAD data is not currently available 2016 onward).

To put it in terms of GDP, India’s 2016 inflow was about 2 percent of its GDP, Bangladesh 1.1 percent, and Sri Lanka also 1.1 percent, according to World Bank datasets, which put Pakistan’s numbers at 0.8 percent for FY16.

This performance includes all the grand CPEC projects on the ground. China’s gross FDI inflow in Pakistan between FY16 to-date is $3.8 billion, most of which increasingly concentrated in power and construction. (See BR Research Fids: diversification calling published March 28 & March 29, 2018).

Of course, it is quite possible that all the other billions of investments being showered under CPEC are coming in the form of external loan. The only problem is that those datasets are not publicly available as yet, leaving much to guesstimates.

According to Ministry of Finance’s (MoF) Debt Policy Statement FY18, Pakistan took $1.6 billion bilateral loan from China in FY17, whereas China Development Bank had provided external financing of $1.7 billion and ICBC and Bank of China combined provided $600 million in the same year. MoF’s recent numbers are not available.

In an analysis titled ‘The Chinese debt’ (published Mar 7, 2018), BR Research estimated that about Pakistan’s private sector debt from China is about $3.5 billion, whereas the increase in Chinese bilateral debt to Pakistan between Jun 2015 and Dec 2018 was about $4.2 billion. How much of the latter is a loan for CPEC projects; government documents haven’t explicitly made that clear.

We do know, based on FY16’s State of Economy report by the central bank, that some of the major projects financed by China via bilateral loans include: (i) Chashma Nuclear Power Project, III & IV ($112 million); (ii) Karachi Coastal Power Project-PBC ($174 million); (iii) Neelum Jhelum Hydro power project ($ 106.5 million); and (iv) Orange Line in Lahore ($ 403.7 million).

In his press moot in August 2017, Ahsal Iqbal had stated that out of the $46 billion, $35 billion was purely an investment whereas $11 billion was soft loan.

So far, the Chinese loans post-CPEC-agreement ($4.2bn plus $3.5bn) have outpaced the Chinese FDI ($3.8 bn). The government would do well to bring clarity to these numbers together with reasons why the smaller debt component of the $46 billion is outpacing the bigger FDI component.