The upgrade of Pakistan's infrastructure will attract direct investment from abroad, including industries in China which seek lower-cost locations, the Asian Development Bank has said.
According to an ADB report on Sunday, the China-Pakistan Economic Corridor (CPEC) will significantly address Pakistan's infrastructure deficit.
The country's annual spending on infrastructure is only two-three per cent of GDP over the past four decades. The CPEC is planned to be completed by 2030, Dawn online reported.
Higher economic growth in fiscal year 2018-19 reflects accelerated infrastructure investment through CPEC, which is steadily lifting consumer and investor confidence and, thereby, further catalysing economic activity, the report said.
The large investment in infrastructure should boost construction related industries, spurring job creation and growth, and goods from China transiting from northern Pakistan to the seaport will bolster the transport sector, further stimulating private investment and activity, the Asian Development Outlook 2017 said.
CPEC investments are likely to require significant increases in imports of equipment and services to implement the projects. In the medium-to-long term, these inflows will likely to be followed by financial outflows as loans are repaid and profits repatriated to foreign investors.
Higher foreign exchange earnings and exports will be needed to avoid pressure on the external account, the report emphasised.
To reap the potential benefits of CPEC and shift the economy of Pakistan to a higher growth trajectory, the government must continue to address key constraints on growth, it said.
The Pakistani government has identified "early harvest" infrastructure projects to be completed over the next few years. Of these, $21 billion will be spent on energy projects. These will be financed by foreign direct investment from China, supported by borrowing from banks there.
According to Dawn online, independent electricity-generating firms will be offered guaranteed tariff for their sales to distribution companies that will ensure at least 17 per cent return on equity.
About $10 billion investment in transport infrastructure will be financed by a combination of concessional and commercial loans from the Chinese government.