Pakistan has been facing the problem of energy crisis since 2007 and it has adversely affected the productivity and growth of the economy. To overcome this problem, under CPEC, 21 energy projects have been started in four provinces of Pakistan, Gilgit Baltistan (GB) and Azad Jammu & Kashmir (AJK). This study tries to access the impact of the CPEC energy project located in the Azad Jammu and Kashmir referred to as the 720MW Karot hydropower project on the economy of Pakistan using the Computable General Equilibrium (CGE) model. Based on Social Accounting Matrix (SAM) 2010-2011 and) Global Trade Analysis Project (GTAP) database, this study simulates the impact of Karot hydropower project on some of the macroeconomic variables. The simulated results reveal that real GDP and total exports to other countries increase owing to the investment in hydropower projects as well as an increase in the supply of electricity. Moreover, investment in the Karot hydropower project also increases the growth of the interlinked sectors such as manufacturing sector, transport, and communication, agriculture and services sector respectively. This study also observes that the real prices of factor input also increase which would have a direct impact on wellbeing of the people.