Capturing The CPEC Opportunity - Pakistonomy

Capturing the CPEC Opportunity -
Pakistonomy by Uzair Younas

pakistonomy.substack.com
The early harvest projects under the China-Pakistan Economic

Corridor (CPEC) catalyzed sorely needed investments in power
projects and large public infrastructure projects. The completion
of the projects helped Pakistan end its chronic power generation
crisis and developed world-class highway infrastructure.
At the same time, however, these projects were largely

responsible for a dramatic spike in Pakistan’s current account
de cit, a rise in external debt, and a sustained decline in foreign
exchange reserves.
But debt and current account de cits by default are not bad
things. Allow me to explain:
Imagine there are two living versions of you, Version A and
Version B.
Both borrow $250,000.
Version A borrows the money as part of a graduate student

loan program to get their MBA.
Version B uses a credit card to buy an expensive luxury car.
It is clearly evident that Version A has borrowed money to

invest in their future income - the loans have been taken at
low rates to nance a long-term growth in their income
generating capacity.
Version B, meanwhile, has used a short-term, high-rate credit

line to nance a high-depreciation, high-maintenance asset.
This asset does not boost their long-term income generating
capacity.
While both have borrowed, clearly Version A’s borrowing is

justi ed and should be encourage, while Version B has a
spending problem and needs help.
The same goes for countries like Pakistan, who need to invest in
development spending to build their long-term economic growth
capacity. The early harvest projects under CPEC did exactly that.
But like Version A, who after getting into an MBA program must
study hard and make the right choices to maximize the bene t of
their education, Pakistan had to embark on structural reforms to
maximize the bene ts from CPEC.
This is all the more important given that the loans are
denominated in US dollars, meaning that the country must nd a
way to earn US dollars in order to pay back these loans plus
interest.
Before going into the details, a short disclaimer: what I am

describing does not, in any way, shape, or form, justify the
overvalued exchange rate and the poor choices made by the
PML-N in managing an overheating economy.
To earn US dollars, Pakistan must eliminate “plotistan.”
To talk about CPEC and its impact on Pakistan’s economy, I

recently invited Dr. Tayyab Safdar, a post-doctoral researcher at
the University of Virginia, to the podcast.
We talked about a whole bunch of things but one of the most

important points we discussed was related to the incentive
people have to invest in unproductive asset classes in the
country. The most attractive asset within this category are plots.
For investors in Pakistan, it is far more bene cial to operate in
this economy, which I call “Plotistan.” You can hide your illicit
wealth there. You can speculate and get a quick buck. You don’t
have to pay much, if anything, in the form of taxes. And best of
all, you can get high returns all while sitting in the comfort of
your home.
Meanwhile, those who want to actually do something more have

to operated in the real economy where it is simply very, very
hard to do business. You have to constantly deal with the tax
authorities, who are continually extracting more rupees from
those who pay while failing to expand the tax net. You have to
deal with poor urban infrastructure, especially if you are in
Karachi. And if you are an exporter, you have to deal with a
whole host of issues from waiting for refunds to high in ation to
hiring and training a poorly-skilled labor force.
All of this means that over time, anyone with excess capital will
choose to migrate to Plotistan, because it offers equal if not
better returns than the real economy and there is less hassle.
Additionally, the Supreme Court decision setting a precedent

that an operative in Plotistan can steal peoples’ lands and be
given a clean chit by paying a ne to the state, means that one
can now run illegal housing schemes and come out richer and
more in uential!
Malik Riaz
Operatives in Plotistan have captured Pakistan.
Effective property tax collection systems that value property on

par with market value provide nances to run urban centers all
over the world. But given that the state has been captured by
elites who bene t from parking their wealth in plots, Pakistan
has a weak property tax collection system.
Here is a comparison:
Pune, a city of ~3.5m people, collects USD 109m per year

from property taxes.
Sindh, a province of ~50m people, collects USD 11m per year

from property taxes.
Messed up, isn’t it?
So next time you hear a politician talking about the need for
Pakistan to grow its exports and how CPEC will change the
destiny of the Pakistani state, ask them what they are doing
about reducing the incentives for people to invest in
unproductive asset classes, and more speci cally, what they are
doing to raise property taxes across the country.
If you like our content, please do subscribe and share it with your
friends.

Capturing The CPEC Opportunity - Pakistonomy

Uploaded by

Copyright:

Capturing The CPEC Opportunity - Pakistonomy

Uploaded by

Document Information

Original Title

Copyright

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Capturing The CPEC Opportunity - Pakistonomy

Uploaded by

Copyright:

Capturing the CPEC Opportunity -

Pakistonomy by Uzair Younas

The early harvest projects under the China-Pakistan Economic

At the same time, however, these projects were largely

Both borrow $250,000.

Version A borrows the money as part of a graduate student

Version B uses a credit card to buy an expensive luxury car.

It is clearly evident that Version A has borrowed money to

Version B, meanwhile, has used a short-term, high-rate credit

While both have borrowed, clearly Version A’s borrowing is

Before going into the details, a short disclaimer: what I am

To earn US dollars, Pakistan must eliminate “plotistan.”

To talk about CPEC and its impact on Pakistan’s economy, I

We talked about a whole bunch of things but one of the most

Meanwhile, those who want to actually do something more have

Additionally, the Supreme Court decision setting a precedent

Effective property tax collection systems that value property on

Pune, a city of ~3.5m people, collects USD 109m per year

Sindh, a province of ~50m people, collects USD 11m per year

Messed up, isn’t it?

You might also like