IMF Holds Talks With Pakistan On Economic Issues, As Islamabad Seeks Lifeline With China Loans
China helping Pakistan avert foreign currency crisis: “The money strengthens the financial, political and military ties between the two countries”
May 26, 2018 (BE2C2 Report) — The International Monetary Fund (IMF) has invited a number of renowned economists, academicians and former senior government officials to Washington for consultations on a future roadmap on economic challenges of Pakistan and possibility for extending another bailout package in case Islamabad made a formal request.
“Yes, the IMF has held broad-based informal consultations with eminent economists, academicians and retired senior government officials from Pakistan at Washington and arranged a round table conference during this week by extending special invitations,” an official said, requesting anonymity, according to Internews.
Pakistan has not yet officially approached the IMF for making any formal request for bailout package. Financial analysts predict that after the general election, likely in July, Islamabad will need its second International Monetary Fund (IMF) bailout since 2013. The last IMF assistance package was worth $6.7 billion.
But Islamabad expects to obtain fresh loans from China worth $1-2 billion to help it avert a balance of payments crisis, government sources told Reuters.
“I think this month we will get that $1-2 billion,” said a senior government official, saying the funds will come from Chinese state-run institutions.
A second government official confirmed Islamabad was in “sensitive” talks with Beijing over extra funding for up to $2 billion, according to Reuters.
“The money strengthens the financial, political and military ties between the two countries,” said State Bank of Pakistan (SBP) Governor Tariq Bajwa to The Financial Times in an interview, while confirming the loans previously made by Beijing-backed banks are on good rates.
According to the FT report, prior to last month’s loan of $1bn, Pakistan had borrowed almost $1.2bn from Chinese banks since April 2017 and more loans might follow. Another anonymous official quoted by the publication claimed that Pakistan’s finance ministry has held “informal discussions” with the Chinese to lend at least an additional $500mn before the end of the financial year June 30, 2018.
“Borrowing from China has become an increasing feature of our external side,” the official said.
And Bajwa was quoted by FT as saying, “Chinese commercial banks are awash with liquidity.”
Pakistan secured a $1 billion commercial loan from a Chinese bank a day after the announcement of the federal budget 2018-19 on April 27 which is repayable in three years, Dawn reported earlier this month. This improved the country’s total foreign exchange reserves to $17.7bn, jacking up official reserves held by the State Bank of Pakistan by 5.5 per cent to $11.5bn.
According to the FT article, Pakistani officials also hope that borrowing from Chinese banks will also save Pakistan a trip to the IMF.
Lending money to Pakistan also favors China, said FT quoting government officials, as it does not wish to disclose details of the loans that are part of the CPEC – the main cog of China’s Belt and Toad initiative. China is investing almost $62bn on building energy and transport projects in Pakistan, however, it is reluctant to reveal the sum it is lending to Islamabad as part of the CPEC project.
“The Chinese are not keen on western institutions learning the minute details of [financing of] CPEC projects,” an unnamed official in Islamabad was quoted as saying. “An IMF program will require Pakistan to disclose the financial terms to its officials.”
Pakistan is expecting the dollar inflows from China in shape of safe deposits in order to support its balance of payment but couple of billions could rescue Islamabad for period of couple of months only, analysts say. It seems that the IMF package is imminent after elections although preparatory talks may kick-start even during the tenure of interim regime, report Internews.
According to the report, ust ahead of installation of caretaker setup in Islamabad, the Fund invited experts of different sectors from Pakistan at Washington as part of consultation process to learn mistakes from the past programs and devise such a roadmap that could help Islamabad to overcome its growing economic difficulties.
All programs of the IMF had failed in achieving the desired objectives and except during the tenure of the outgoing government all other programs struck down half way when Islamabad was known as ‘one or two tranche country.’ One official told in background discussions that there will be more consultations in Islamabad, Lahore and Karachi.
The IMF, he said, is really worried about rising debt burden especially from Chinese side. Due to bad track record of structural reform, stringent tax reform may be prior action. Standby rather than medium term facility is on cards, he added.
IMF Resident Representative in Pakistan Teresa Sanchez was quoted by The News daily yesterday as saying that it was part of the overall agenda of the IMF to hold consultations with economists, academicians and senior retired government officials for devising future plan that how the problems faced by Pakistan could be solved on long-term basis.
She said that the Article IV (4) consultation would be due in June 2018 and IMF’s mission could visit Islamabad for holding talks provided Pakistan extended invitation to the Fund on this account.
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