The deals, called the China-Pakistan Economic Corridor, should help shore up Pakistan’s crumbling infrastructure and reduce its electricity shortages by building more power plants.
China will get a free trade zone in Pakistan’s Gwadar port and access to the Indian Ocean. New Pakistani roads will open up routes for Chinese goods into Europe and the Middle East.
But the details, terms and financing of many of the deals remain unclear.
“CPEC needs to be more transparent,” Ashraf Mahmood Wathra said. “I don’t know out of the $46 billion how much is debt, how much is equity and how much is in kind.”
Pakistan, a nuclear-armed nation of 190 million people, has frequently struggled to manage its cash flows because the government is reluctant to tax the wealthy and powerful.
In September of 2013, Pakistan faced a balance of payments crisis, with just over $4 billion in foreign reserves held by the State Bank – less than a month of imports.
But since then, the state bank’s reserves have recovered to $14.6 billion, with the help of an International Monetary Fund program agreed after Prime Minister Nawaz Sharif took power in 2013, a $1.5 billion gift from Saudi Arabia, an auction of telecommunications licenses and the issuing of a Euro bond.
Inflation dropped 2.73 percent as oil prices in particular and commodity prices in general declined. The rupee has stabilised at 105 to the U.S. dollar, although last month the IMF said it believes the rupee is over-valued.
Pakistan’s economy grew 4.2 percent this year, a slight improvement over the last year, and the country hopes to reach 4.5 to 5.0 percent growth next year, Wathra said.
Yet underlying problems plaguing the economy, including daily power cuts and security problems, remain.
“Our long-term solutions lie in increasing exports and increasing FDI (foreign direct investment),” Wathra said. “Without these two strong inflows, it is very difficult to keep the economy on track.”
Foreign investment flows have been shrinking, falling by nearly a quarter this financial year compared with last year, and exporters say the energy crisis and an over-valued rupee is crippling business.