Pakistan will have to take tough decisions if US blocks bailout

Published: October 8, 2018
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Pompeo has openly expressed his reservations about bailing out a former non-NATO ally.

PHOTO: FILE

Pompeo has openly expressed his reservations about bailing out a former non-NATO ally. PHOTO: FILE

ISLAMABAD: In the last round of talks with US Secretary of State Michael Pompeo, Pakistan sought to refute an impression that US tax dollars and the IMF package may be used to pay back Chinese loans.

Islamabad has consistently emphasised that the Chinese loans were of long-term in nature and that they have got nothing to do with a possible IMF bailout package.

There is, however, little truth to this narrative. Take, for example, the case of M5 motorway project. Its tender documents barred firms, which were not nominees of the Communist party, from participating in the bidding process altogether. Moreover, the Exim Bank of China financed those firms that imported raw material including cement and purchased equipment from China – instead of buying from local manufacturers.

US opposes IMF bailout for Pakistan

It means that these projects effectively stimulated a declining Chinese economy – at the expense of Islamabad’s.

However, Islamabad is in a state of denial. The public realises there are grave problems associated with finances of the Belt and Road Initiative (BRI) but the inexperienced incumbent government is largely unaware of the extent of those problems.

The 2015 deal to borrow from China has led to the climax of years of fiscal weakness and the debt trap. With billions already spent on Gwadar, we have yet to see any economic dividends from the development of this container-shipping hub.

Instead, since 2016, Pakistan has witnessed essentially a continued currency crisis with the economy heading into stagflation – a pungent combination of recession and high unemployment.

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As an economy with structural weaknesses, reflected in its large external deficits and circular debt, the exchange rate is under unsustainable pressures. The process of letting the currency slip freely is not over yet and no one has an idea where it will end up if left largely to the market forces.

During 2018 elections, the Pakistan Tehreek-e-Insaf (PTI) found what it thought was a killer political theme this fall: say no to foreign aid – with the exception of that from our Chinese and Saudi friends. But now Finance Minister Asad Umar has dialed down the rhetoric and recognised the need for an urgent IMF package to keep the economy afloat.

The new cabinet backs the IMF-proposed reduction in government spending, tax increases and rises in interest rate. Unfortunately, root causes of such fiscal problems that are studiously ignored do not disappear. For laying the groundwork that will allow his team to act swiftly, Umar needs to take firm action.

Pompeo has openly expressed his reservations about bailing out a former non-NATO ally as the geopolitical offensive component in the BRI vision is getting more and more pronounced every day.

If the US pulls the plug on an IMF bailout package, the new government in Islamabad will have to make tough decisions. Blocking IMF loans is just a small part of this back-and-forth game between the US and Pakistan that began 70 years ago. What is different this time is that Beijing is now part of the equation.

The writer is a Cambridge graduate and is working as a strategy consultant

 

Published in The Express Tribune, October 8th, 2018.

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Reader Comments (8)

  • riaz
    Oct 8, 2018 - 9:33AM

    These news paper so biased towards IK’s government, why you are blaming new government for the Chinese loan taken in 2015? What this government has to with decisions made by your so called experienced government? These are trying to fix the mess created by your favourite experienced governments. Such a clearly biased reporting.Recommend

  • robin
    Oct 8, 2018 - 10:28AM

    I doubt he is consultant Recommend

  • Feroz
    Oct 8, 2018 - 12:49PM

    The US has leverage both at the IMF and on the matter of FATF, whether the Pakistani FM in recent meetings with his US counterparts has managed to strike some kind of deal, will be known soon.Recommend

  • Lilly
    Oct 8, 2018 - 12:59PM

    Rightly said! Article portrays the true picture of CPEC debt.Recommend

  • Rizwan
    Oct 8, 2018 - 3:14PM

    Wow. Never thought this remains a possibility/stumbling block specially after daily display of smiles and all good vibes fm SMQ during his US yatra. Recommend

  • Engr.Amir Sultan Rana
    Oct 8, 2018 - 4:01PM

    No issue for Pakistan. If the US is resisting, take some other measures. I have a honest opinion from the government. Kindly take all Pakistanis on one agenda for making it prosper. Regardless of any parties, all of us should unite together for the prosperity of Pakistan. Let all of us unite together and rely on ourselves to solve our pertaining issues.

    We are on out right track for growth. I am sure if the said stream of motion remained continue, we will be developed nation in the few years to come.

    Priority should always be given to ourselves whenever taking any financial decision.

    Best of luck Pakistan.Recommend

  • Careful reader
    Oct 8, 2018 - 4:47PM

    No one ever said that there are no China loans ; the point was that they are on soft terms and not even due yet for payment ! Recommend

  • Saad
    Oct 8, 2018 - 6:25PM

    @riaz:
    PTI promised “to hit the road running” before the polls. They said they had made plans for everything and withing 100 days stabilize the economy. They said that they will not go to the IMF or take aid from anybody. What happened to those promises? The people have the right to know.Recommend

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