Dwindling foreign exchange reserves, low exports, high inflation, growing fiscal deficit, and current account deficit is not a new phenomenon that Pakistan is witnessing. On its heels for the 23rd International Monetary Fund (IMF) loan, the country’s economy is at its all-time low. And how much does Pakistan already owe to the IMF from previous programmes is a case study in itself. An alarming trend with Pakistan’s IMF loan programmes is that they are becoming longer (payout period is increasing) and larger with each year.
As if this was not enough, Pakistan also owes total foreign loans for balance of payments support, budgetary support and project financing amounted to $12.6 billion from July through March 2019.
At a time when Pakistan has reached an “agreement in principle” with the International Monetary Fund (IMF) over a $6 billion 13th bailout package, Imran Khan’s visit to China next week will be interesting to follow up.
Highly placed sources in the Ministry of Finance reveal that against an official announcement of receiving $2.2 billion in commercial loan from China, the country actually extended $2.54 billion in March. China Development Bank gave $2.24 billion in short-term loan while Industrial and Commercial Bank of China (ICBC) also disbursed $300 million in March.
However, one must not forget that crisis interventions by outside donors are no more than a stopgap solution to what has become a chronic problem in Pakistan today.
Pakistan will have to pay back $100 billion to China by 2024 of a total investment of $18.5 billion, which China has invested on account of bank loans in 19 early harvest projects, under CPEC.
China has become the biggest lender to Pakistan after surpassing Japan. Pakistan owes $19 billion (1/5 of its total debt) to China. The CPEC loans will add $14 billion to Pakistan’s total public debt, raising it to $90 billion by June 2019, abating Pakistan’s economic ability to service a huge amount of debt.
What is China gaining?
It is revealed that Pakistan would take a minimum of 60 years to repay the loan given by China. So, why will China not help Pakistan overcome the financial crisis? The more the debt of Pakistan is, the more China will benefit.
The Chinese are busy and happy swapping debt with equity, which they know will be applicable to CPEC sooner or later.
The austerity measures demanded by the IMF will further devastate the living conditions in Pakistan. Tough fiscal measures such as the imposition of more and higher taxes, withdrawal of tax exemptions, increases in energy tariffs, elimination of energy tariff subsidies and privatization of public sector enterprises would strongly hit the poverty-stricken people of Pakistan, much more in the near future. FATF hanging like an albatross and a new engagement with the IMF will certainly have negative implications for the people of Pakistan. But with a humungous debt over its back, Pakistan has no choice but to align with China at the present. Chinese debt forgiveness and entity swap at the cost of no transparency is therefore acceptable to Pakistan.
18 Apr 19/ Thursday Written by Afsana