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April 25, 2020

CPEC projects may face delay, disruption: report

Top Story

April 25, 2020

ISLAMABAD: Pakistani authorities have warned about delays and disruption in China Pakistan Economic Corridors (CPEC) related multi-billion dollars projects after outbreak of coronavirus. In a detailed report tabled before high-powered National Coordination Committee (NCC) stating that Chinese companies working on CPEC projects will suffer delays and higher costs along with supply-chain and worker related disruptions will be witnessed.

It states that Pakistan’s plan to expeditiously build Special Economic Zones (SEZs) will also be thwarted or at least face delays as Chinese companies will find it hard to manage required human and capital supplies on an urgent basis.

In the second-round effect, the SEZs will be the most effective tool to harness benefit out of the crisis, it added. It is believed that there is a serious thought going on in businesses in G-8 countries to diversify global supply chains so that in case of emergency in one country they could fall back upon other sources of supply. Even some business giants in China also subscribe to this thought, as they would want to re-locate their production houses in different countries. Pakistan on the back of its infrastructure availability could be a contender to benefit from global business opportunities precipitation from the impacts of COVID-19.

A well-articulated policy is need of the hour, however, the response may be constrained by: Uncertainty about the nature and duration of shocks may complicate policy response; Adequately finance demand of health systems and social safety nets within the confines of already squeezed budgets may not be sufficient; Need for a mix of timely and targeted policies on hard-hit sectors and segments of society through temporary tax relief and cash transfers (identification problem); Reprioritise revenue and spending objectives as lower revenues resulting from lower imports coupled with additional spending requirements for pandemic mitigation are likely to widen fiscal deficit. This in turn will further aggravate precarious debt situation; Target measures to defer taxes and government fees, defer loan payments, and increase concessional financing for small and medium-sized enterprises; SBP to provide ample liquidity to banks particularly for lending to SMEs as financing needs to remain solvent are likely to grow at a rapid pace.

In the second-round effect, the report says, many businesses will face liquidity problem and will look towards the financial sector for cheaper sources of financing. Global markets will be tight thereby constricting exports and remittances, fiscal adjustment will be painful, higher debt accumulation will be problematic, development will be harder to find financing, revenues will be difficult to increase while expenditure demand will be immense, and in all this an intricate policy mix has to be in place for stable transition out of the crisis, the report concluded.