IMF cautions Pakistan against increasing Chinese involvement in economy

Published: October 10, 2018
Maurice Obstfeld, Economic Counsellor and Director, Research Department of IMF. PHOTO: REUTERS

Maurice Obstfeld, Economic Counsellor and Director, Research Department of IMF. PHOTO: REUTERS

BALI: The International Monetary Fund’s (IMF) chief economist Maurice Obstfeld cautioned Pakistan against increased Chinese involvement in the economy.

Addressing a news conference at the IMF and World Bank annual meetings in Bali, Obstfeld warned that the increasing role could bring both benefits and risks.

He stressed that Pakistan was facing financing gaps as it has been hit by a large fiscal and current account deficit, a low level of reserves and a currency he described as “too rigid” and over-valued.

Finance Minister Asad Umar said on Monday the government would seek to open talks with the IMF in Bali this week for emergency financial assistance. Prime Minister Imran Khan had earlier sought alternatives to a second bailout programme in five years from the IMF as it imposes austerity and limits his vision of an Islamic welfare state.

Pakistan’s debt sustainability indicators in disarray

Obstfeld said that if the IMF does enter into talks with Pakistan this week on a possible new financing programme, the goal would be reforms that would help Pakistan reach its “immense potential” without providing specific details.

“The government has expressed its desires to enact deep structural reforms that might break the cycle of Pakistan needing financial support from the Fund,” he said.

Infrastructure needs

Pakistan needs more infrastructure development, Obstfeld added, and the country could benefit from China’s role in supporting its project financing.

But China’s involvement could also bring potential risks, he said. “It is important that the design of the projects… be solid and excessive debts which cannot be repaid are avoided,” the IMF chief economist said.

Pakistan knocks at IMF door to avoid default

Islamabad has cut the size of the biggest Chinese “Silk Road” project in Pakistan, a reconstruction of the main rail line between the port city of Karachi and Peshawar in the northwest by $2 billion, citing government concerns about the country’s debt levels.

The changes are part of Islamabad’s efforts to rethink key Belt and Road Initiative projects in Pakistan, to which China has pledged about $60 billion in financing.

The Trump administration has been critical of China’s Belt and Road initiative, saying that it has saddled some developing countries with debts they cannot afford to repay. In July, US Secretary of State Mike Pompeo said there was “no rationale” for an IMF bailout of Pakistan that pays off Chinese loans to Pakistan.

Chinese officials have rejected criticism that the so-called China-Pakistan Economic Corridor (CPEC) projects have burdened Pakistan with unsustainable debts. Instead, the Chinese maintain, they have boosted the country’s economic growth and provided 70,000 jobs.

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Reader Comments (5)

  • Pakistani
    Oct 10, 2018 - 3:11PM

    Trump is right about Chinese. Trump bhai zindabad.Recommend

  • Engr.Amir Sultan Rana
    Oct 10, 2018 - 4:44PM

    I think Pakistan should play a tactful game with both China and US. At this time, Pakistan main agenda should be to remain friends with everyone. I tell you what Pakistan should do. Ok.

    Make a strategy which put all of our friends and associated countries and institutions on that. The strategy should be realistic and positive. Than convince all associates for the said.

    Gradually start acting on the strategy made and show all our commitments for the said.

    I am again emphasizing, encourage internal industries (local industries) to bloom and grow. Tell message to every Pakistani to participate maximum in buying and using Pakistan made products.

    If we start implementing on the said mentioned we will be on right track of negotiations and decisions with our associates.

    Best of luck Pakistan.Recommend

  • Ghasam Zaidi
    Oct 10, 2018 - 7:31PM

    @Engr.Amir Sultan Rana:
    Agreed, and that even includes making friends and a trading partner with India. In order for local industries to really “bloom” is to make face competition from other countries. Recommend

  • powayman
    Oct 10, 2018 - 9:45PM

    It is important that the design of the projects… be solid and excessive debts which cannot be repaid are avoided,”
    In other words – major investments should always be subject to objective/independent economic analysis which outlines the benefits/drawbacks and exactly how/when the debt is going to be repaid. My guess – none of that has happened with any CPEC investment which might explain why CPEC is so closely guarded. Recommend

  • blutard
    Oct 11, 2018 - 4:04AM

    Just more anecdotal evidence that lender are concerned when countries sign on to Billion dollar Chinese deals with no due diligence/economic analysis. Maybe it’s time to take a step back and ask an outside expert whether the deals consummated by the prior administration make any economic sense? If the deals never made any economic sense then maybe we hire another outside expert to determine who profited from making these bogus deals? There is a reason that NOBODY is disclosing info about CPEC and the only positive thing about running to IMF is that they are going to demand disclosure before they commit to loan. Recommend

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