Fitch Solutions, a global company focused on credit, economic, and political research, says in its latest report that the China-Pakistan Economic Corridor (CPEC) will drive Pakistan's construction industry in the next decade, as the risks associated with CPEC projects recede. Fitch forecasts that the real annual growth rate of Pakistan's construction industry will average 8.9% over the next 5 years. "We will adjust our forecasts to account for possible positive ripple effects across the economy, including the construction industry, in the event an IMF bailout is secured", the report adds.
Fitch Solutions' report titled "Industry Trend Analysis - CPEC to Remain a Primary Driver of Pakistan's Construction Industry" says: "We expect debt concerns surrounding CPEC projects to ease after financial details are released. In addition, we believe political risks associated with CPEC projects have diminished since the 2018 Pakistani general election. These factors will reduce overall risk profile of CPEC projects."
The Fitch report acknowledges the completion of eleven CPEC projects termed "early harvest". It says that despite major media and political scrutiny regarding CPEC, this progress on projects highlights Beijing’s improving track record in project execution and its commitment to infrastructure development in Pakistan. As a result of CPEC progress, a total of 3,240MW of capacity has been added to the country’s national grid, constituting over 11% of total installed capacity in Pakistan. Also highlighted in the report is the 392 kilometer Multan to Sukkur section of the Peshawar-Karachi motorway, a key CPEC project which is over 80% complete and is slated to finish by August this year.
Fitch believes political risks associated with CPEC projects have diminished. "Previously, we noted that the transition in power from Pakistan Muslim League (Nawaz) to Pakistan Tehreek-e-Insaf (PTI) posed a downside risk to the Pakistani construction industry as new Prime Minister Imran Khan pledged to review Chinese-backed projects, which could potentially have led to project delays and cancellations. However, the political situation in Pakistan has since stabilized and Prime Minister Imran Khan has demonstrated willingness to cooperate with China on multiple issues including CPEC. As such, we are in the view that downside risks stemming from political uncertainty are diminishing, and bilateral projects spearheaded by CPEC, will receive a boost in terms of policy implementation and project continuity," maintained the report.
In another recent report, Fitch's competitor Moody's has acknowledged that rermittances from Pakistan diaspora rose by 10% year on year to $10.71 billion in the first half of fiscal 2019, while goods imports slowed sharply to around 3% year on year as non-energy imports contracted.
Moody's expects "the current-account deficit to narrow to 4.7% of GDP in fiscal 2019 and to 4.2% in fiscal 2020 from 6.1% in fiscal 2018, it will remain sizable and wider than in 2013-16, driving Pakistan’s external financing needs. The government has secured $12 billion in financing from Saudi Arabia and the United Arab Emirates – in each case amounting to $6 billion and divided equally between deposits and deferred oil payments – which is likely to largely cover the country’s net financing needs for fiscal 2019".
Construction industry is a major driver of economies. The sector creates new jobs, builds housing and infrastructure, drives economic growth, and provides solutions to address social, climate and energy challenges, according to the World Economic Forum. The construction industry has important linkages with other sectors such as cement, steel, energy, furniture, household appliances, etc. The construction industry's impact on GDP and economic development goes well beyond the direct contribution of construction activities.