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Fiscal risk to economy

Fiscal risk to economy

According to a World Bank report, sovereign guarantees associated with China-Pakistan Economic Corridor and over spending ahead of the next general elections could pose substantial fiscal risks for the country’s economy. On another note, economists believe that strings of implications attached with $46 billion Chinese investment could disturb Pakistan’s external and fiscal accounts. Therefore, the government should have to take cognizance of the financial implications of the game-changing project and take steps for a better debt management. The government should also handle the accounts of investment and foreign loans separately for better management of debt servicing. One of the ways to offset the impact of loans is to boost industrial activities and enhance gross domestic product in the next five years.

The government will also have to take concentrate on steps to enhance exports of value added goods. The current thrust of Pakistan is on the export of raw material and food items which sometime adversely affect the economic situation within the country. It is unfortunate that instead of increasing, the exports are falling and the government is so far unable to handle the situation.

The cautious advice of the World Bank has come at a time when the foreign exchange reserves have downed by 1.78 percent as the officials were thumping their chests a couple of weeks ago that the reserves have crossed $21 billion mark. The bank fears that the gains of fiscal stability would loss ahead of the next general elections, but there are opportunities for Pakistan to improve its finance in the wake of corridor investment, return of Iran to the international economic community and persistently declining oil prices in the international market. However, the government will have to give sovereign guarantees against the private investment from China, including payments of electricity produced by the plants set up under CPEC.

According to the World Bank report, Pakistan can benefit from long term investment, but will have to introduce reforms, improve security and ease energy constraints. The agreements with Chinese government will boost the investors’ confidence in Pakistan’s policies, and it will work as an engine to ensure long-term growth. The world financial institutions have off and on pointed out the challenges facing the South Asian countries in reaping the benefits of mutual trade. As for as the GDP of the countries in the region is concerned, the share of intra-regional exports is very small as compared to the exports of these countries to the European and north American nations. It is hoped that the Chinese investment will open the gates of foreign investment in the country and the government will be able to avoid fiscal risks to its economy.