Islamabad warns return to IMF would put $60bn of Chinese investment at risk
Pakistan has asked China to keep lending it money to avert a foreign currency crisis, warning that Beijing’s planned $60bn investment in the south Asian country was at risk if it failed to do so.
Pakistan borrowed $4bn from China in the year ending June 2018, according to government officials, and wants to keep the money flowing to avoid having to ask the IMF for a bailout.
Officials in Islamabad have warned their Chinese counterparts that if the lending dries up, it could threaten the future of the China-Pakistan Economic Corridor, the cornerstone of President Xi Jinping’s Belt and Road Initiative.
They say that if Pakistan is forced to approach the IMF instead, it may have to disclose details of how the scheme is being funded, and even cancel some of the infrastructure projects already planned.
One Pakistani government official said: “We had a detailed discussion with the Chinese and we shared our concern. The main issue is that once we are locked in an IMF programme, we will have to make full disclosure of the terms on which China has agreed to build the CPEC.”
Another added: “Once the IMF looks at CPEC, they are certain to ask if Pakistan can afford such a large expenditure given our present economic outlook.”
Pakistan’s stocks of foreign reserves have been falling for the past two years, as imports rise and remittances from abroad have fallen. But the slide has gathered pace in recent few months, due in part to higher oil prices pushing up the price of imported goods.
By the beginning of June, the State Bank of Pakistan had just $10bn worth of foreign currency, down from $16.1bn a year earlier and not even enough to cover two months’ worth of imports. The situation is set to become even more urgent in 2019, when $12.7bn of external repayments are due, compared with $7.7bn this year.
Stephen Schwartz, a senior director at the rating agency Fitch, said: “We have elections at the end of July, and the new government will have to immediately draw up further and considerable policies to stabilise the external finances.”
Islamabad has so far avoided having to return to the IMF after exiting its last programme in 2016, in part through Chinese lending, and more recently by devaluing its currency 13 per cent against the dollar.
The dependency on money from Chinese state-backed banks has started to worry some people, who say that the country’s increasingly close economic and military ties with its northern neighbour risk turning it into a de facto client state.
Many in the country have now begun to argue that it should instead face the perceived humiliation of returning to the IMF.
Sakib Sherani, a former adviser to the finance ministry, said Pakistan must raise a further $28bn this financial year to keep up with debt repayments.
“It is vital to restore the market’s confidence in Pakistan’s ability to keep up with its repayments,” he said. “The IMF is the only option to deal with this tough situation.”
Courtesy : Financial