Thread by @anasir__

I’ve spent the whole week studying CPEC in my macro class, and I don’t mean to be an alarmist, but YOU GUYS WE ARE FUCKED.

Since people asked for more details, here are some bits from class discussions, some research and from what others have mentioned already:

On CPEC being a "game changer" that will "unleash economic growth" in Pakistan: "Chinese officials privately admit that they expect to lose up to 80 percent of their investment in Pakistan".
devex.com/news/pakistan-…

While some claim that our friendship with China which is "sweeter than honey" is motivating this Chinese "gift", in reality, this is China's way of driving their growth without building up domestic debt, which they did after the recession. forbes.com/sites/panosmou…

Instead, China is looking to direct their excess savings abroad, by creating demand for this abroad instead of locally. In comes the one-belt one-road, which allows them to do exactly this.
medium.com/altcoin-magazi…

On the "concessional terms" of the loans: While the PML-N government claimed that the easy CPEC loans only had a 2% interest rate, this doesn't include the 7% fee for debt servicing, charged by Chinese Insurers to insure against the risk of non-payment.
dailymail.co.uk/indiahome/indi…

To further add to cost of capital, the terms of procurement stipulated that bidding for CPEC projects be limited to Chinese companies and machinery for power plants be imported from China, which may as well charge more than the lowest bid had bidding been done internationally.

This growing import bill has resulted in Pakistan’s balance of payments deficit of $15.63 billion.
ww.chinausfocus.com/finance-econom…

Consequently, in the first two years of the CPEC project, up to June 2017, Pakistan’s imports of machinery and transport equipment jumped 51 per cent to US$15.5 billion.
scmp.com/week-asia/geop….

Here's what this "import-led" growth does to the economy: It creates a domestic boom for a while. Increase consumption in Pakistan, which bids up the prices of non-tradables (e.g. services) in the economy due to increased demand for these.

This, puts upward pressure on wages in the export sector, since things for these workers have become more expensive. This, in turn makes exports more expensive, and shrinks the sector. This further harms the balance of trade which had been affected by massive Chinese imports.

To pay back the dollar-denominated loans to China, Pakistan needs foreign reserves. A country should devalue currency early, at the time of the deal, in order to boost exports and collect foreign reserves.

Sounds easy, right? Except we did the exact OPPOSITE, by keeping the rupee artificially overvalued by SPENDING $7 Billion of foreign reserves, thanks to the Finance Minister's "Dar-Shaped Curve", which defies any macroeconomic logic.
dawn.com/news/1344920

So now, we have a few options: 1) Generate enough revenue an foreign reserves to pay back the Chinese loans & sovereign-backed guarantees. Given the rupee is free-falling into an abyss & we no longer have a Finance Minister, prospects of a sudden productivity boom look bleak.

2) Default get ready to welcome the Chinese as our overlords. Countries that have been unable to service loans have conceded assets to China, e.g Sri Lanka’s Hambantota port and Djibouti, where the Chinese established a military base after it defaulted.
publicpolicy.wharton.upenn.edu/live/news/2555…

3) To take on more loans to pay pack the previous loans, effectively falling into a debt-spiral.