KARACHI: Pakistan has been guaranteed financial backing from Beijing, senior officials said, as the incoming government of Imran Khan seeks to avoid going to the International Monetary Fund (IMF) as it resolves its foreign exchange crisis, reported the Financial Times on Monday.
Senior members of Pakistan Tehreek-e-Insaf (PTI) said they have been assured that they will get further loans from China amid depleting reserves that dropped to $9 billion before Beijing came to the rescue with a $1 billion inflow.
“China has promised to continue helping Pakistan overcome the crunch on foreign payments,” one prospective cabinet minister told the FT.
Another senior party leader said, “The Chinese have signalled their intent to keep helping Pakistan avoid a crisis, a default.” But he added that Chinese officials have urged their Pakistani counterparts “to take steps to reduce the large deficit”.
The FT report comes at a time when the PTI is set to form the federal government after winning the most number of National Assembly seats in last month’s general elections. While the political party gears up to lead Pakistan, among its immediate challenges would be to avert a balance of payments crisis.
Foreign currency reserves have dropped to alarming levels and are only sufficient to finance a month and a half of imports. The central bank has already let the rupee go, devaluing the currency in four rounds since December 2017 before the inflow of $1 billion arrested the slide. The government imposed regulatory duty, but that has not stopped the current account deficit from widening to $17.99 billion in fiscal year 2017-18.
While Pakistan usually relies on the IMF for an inflow, increasing friction with the US has prompted looking at other options. Though the IMF denies that US policy towards Pakistan would affect its chances of seeking the package, experts believe the pool of choices has to be bigger.
Earlier this month, a bipartisan group of US senators also expressed concern over potential bailout requests to the International Monetary Fund (IMF) by countries who have accepted “predatory Chinese infrastructure financing”.
In a letter addressed to Treasury Secretary Steven Mnuchin and Secretary of State Mike Pompeo, the senators asked how the Trump administration plans to address “the dangers of China’s Belt and Road Initiative (BRI)”.
The China-Pakistan Economic Corridor (CPEC) is part of the BRI and involves billions of dollars worth of infrastructure development and establishment of energy projects in Pakistan. However, the development has also involved China extending loans to Pakistan, much to the dismay of the US that feels Beijing is using “economic pressure to affect foreign policy decisions”.
“It is apparent that…the goal for the [Belt and Road Initiative] is the creation of an economic world order ultimately dominated by China,” the letter quoted US senators as saying.