Moody’s gives Pakistan a thumbs-up for its ‘economic corridor’ with China

In a move that highlights how important a country’s infrastructure is to external investors, the ratings agency Moody’s has given a thumbs-up to the mega-project known as the China-Pakistan Economic Corridor (CPEC).

Moody’s gave the project a "credit positive" designation this week (2 March), a week after Pakistan’s cabinet gave rubber-stamp approval of the corridor, on 23 February, after initial work had already begun.

"The government’s support for the implementation of the so-called China-Pakistan Economic Corridor (CPEC) is credit positive for Pakistan because it will spur investment activity, boost bilateral trade flows and help ease the country’s growing energy shortages," Moody’s said in a note, International Business Times reported.

An immediate effect would be an increase in foreign investment from China, already the largest foreign investor in Pakistan

The plan for multi-billion dollar corridor idea envisages a rail and road network, oil and gas pipelines, and fibre optic cables running from Xinjiang in western China down through Pakistan to Gwadar, a strategic port on the Arabian Sea.

The corridor would give China better access to the oil-producing Persian Gulf, while energy projects along the corridor would alleviate Pakistan’s chronic power shortages, and generally stimulate business and investment.

A partial start to work began on 29 November when Pakistan’s prime minister Nawaz Sharif broke ground for a fenced, four-lane motorway in the country’s northwest. The 60-km-long, 4-lane fenced Hazara Motorway in Khyber Pakhtunkhwa province will cost $297m and take two years to complete.

Moody’s said that, if implementation proceeds smoothly, the corridor’s wide-ranging economic benefits will boost Pakistan’s credit quality before 2017, when work is expected to begin in earnest.

An immediate effect would be an increase in foreign investment flows from China. China is already the largest foreign investor in Pakistan, with inflows totaling $696m in the fiscal year ended 30 June 2014.

Besides increasing foreign direct investment, the project will support Pakistan’s external position by bolstering trade flows between the two countries, which have already doubled since 2009 to $8.6bn in 2014, Moody’s said.

Image: Approximate route of the China Pakistan Economic Corridor Map (Wanishahrukh/Wikimedia Commons)

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