China should ensure Pakistan's fiscal deficit doesn't snowball': State media

Beijing: China must ensure that the rising fiscal deficit in Pakistan does not “snowball” into a major financial crisis as it has invested heavily in the country, specially in the $46 billion CPEC project, official Chinese media said on Tuesday.

“While Pakistan’s fast growing economy has made it a darling for foreign investment, the surge in the country’s fiscal deficit and public debts has increasingly become a source of concern for international investors and has led to doubts about its capability to repay its debts,” an article in the state-run Global Times said.

The investments under the CPEC alone amounted to $51 billion, the article said.

“Given the massive investment that China has made in the country as part of the China-Pakistan Economic Corridor (CPEC), China has a vested interest to ensure that the rising fiscal deficit in Pakistan not snowball into a major financial crisis,” it said.

“China should work closely with Pakistan to make sure that the projects it has invested in can generate tangible growth in Pakistan’s real economy, help the country properly manage its deficit level and put it on a sustainable growth path,” it said.

Write-ups critical of Pakistan are rare in Chinese media, considering the all weather close relationship between the two.

Citing Mongolia’s experience where the fiscal deficit climbed to around 15% of GDP in 2016, making it hard for to repay foreign debts, the article said “the worst-case scenario is the last thing China would desire in Pakistan”.

Citing Pakistan media reports it said Pakistan’s fiscal deficit surged to around 2.4% of GDP during the first half (July-December) of the fiscal year 2016-17, the highest in four years.

In 2014-15, the half-year deficit stood at 2.2% and full-year deficit at 5.3%.

The government hopes to keep the deficit below 3.8% of the GDP during the full 2016-17 year.

“A surge in the country’s deficit would make it vulnerable to external shocks and would increase Pakistan’s chances of a debt default. As a major creditor and the largest investor in Pakistan, China has an obligation to safeguard its investments in Pakistan and ensure it can recoup its loans,” it said.