IMF to seek ‘ab­so­lute trans­parency’ of Pak­istan’s debts in bailout talks

Financial Chronicle - - AROUND THE GLOBE - REUTERS

The In­ter­na­tional Mon­e­tary Fund launched for­mal bailout talks with Pak­istan on Thurs­day, and IMF man­ag­ing direc­tor Chris­tine La­garde said she would re­quire “ab­so­lute trans­parency” of Pak­istan’s debts, in­clud­ing those owed to China. She said such dis­clo­sures were nec­es­sary to de­ter­mine the debt sus­tain­abil­ity of coun­tries seek­ing IMF loans.

The re­quire­ments are likely to shine a spot­light on the ex­tent, com­po­si­tion and terms of Pak­istan’s debts to China for in­fra­struc­ture projects as part of Bei­jing’s mas­sive Belt and Road build­ing pro­gramme.

China has pledged some $60 bil­lion in fi­nanc­ing to Pak­istan for ports, railways and roads, but ris­ing debt lev­els have caused Is­lam­abad to cut the size of the big­gest Belt and Road project by some $2 bil­lion.

“In what­ever work we do, we need to have a com­plete un­der­stand­ing and ab­so­lute trans­parency about the na­ture, size, and terms of the debt that is bear­ing on a par­tic­u­lar coun­try,” La­garde said.

The US has crit­i­cised China’s in­fra­struc­ture lend­ing, warn­ing that it has sad­dled some de­vel­op­ing coun­tries with debts that they can­not af­ford to re­pay. US Sec­re­tary of State Mike Pom­peo has said there would be “no ra­tio­nale” for an IMF bailout of Pak­istan that pays off Chi­nese loans.

The US has be­come in­creas­ingly im­pa­tient with what it sees as a lack of sup­port from nu­clear-armed Pak­istan in quelling a Tal­iban in­sur­gency that USled forces are fight­ing in neigh­bor­ing Afghanistan.

La­garde said that the IMF would need to know the ex­tent and com­po­si­tion of the a coun­try’s debt, in­clud­ing sovereign debt and state-owned en­ter­prise debt, “so that we can ac­tu­ally re­ally ap­pre­ci­ate and de­ter­mine the debt sus­tain­abil­ity of that coun­try, if and when we con­sider a pro­gram,” she added.

La­garde said in a state­ment that Pak­istan re­quested IMF as­sis­tance dur­ing a meet­ing with Pak­istani Fi­nance Min­is­ter Asad Umar and cen­tral bank gov­er­nor Tarik Ba­jwa on the side­lines of the IMF and World Bank an­nual meet­ings in Bali.

“An IMF team will visit Is­lam­abad in the com­ing weeks to ini­ti­ate dis­cus­sions for a pos­si­ble IMF­sup­ported eco­nomic pro­gram,” La­garde said. “We look for­ward to our con­tin­u­ing part­ner­ship.”

The for­mal re­quest fol­lows an ap­par­ent 7 per cent de­val­u­a­tion of the Pak­istani ru­pee by the cen­tral bank on Tues­day, af­ter Pak­istani Pres­i­dent Im­ran Khan an­nounced it would seek fi­nan­cial as­sis­tance to ease a mount­ing balance of pay­ments cri­sis. If a pack­age is agreed, it would be Pak­istan’s 13th IMF bailout since 1988. The Fund lent it $6.7 bil­lion in 2013.

State min­is­ter for Rev­enue Muham­mad Ham­mad Azhar said on Wed­nes­day that the gov­ern­ment was con­sid­er­ing op­tions, in­clud­ing the pos­si­ble re­struc­tur­ing of some for­eign loans. “It’s in very ini­tial stages, the ne­go­ti­a­tions haven’t started or ma­tured yet, but this is some­thing that we may look to­wards,” he said.

Donors have warned Pak­istan that its bud­get deficit, which hit 6.6 per­cent of the GDP in the year to end of June, was un­sus­tain­able. “We do have ex­tremely high deficits,” Azhar said. “Un­less we re­struc­ture the debt the bur­den will mount.”

In the past year, Pak­istan has bor­rowed bil­lions of dol­lars from China to boost its for­eign cur­rency re­serves, with the money spent de­fend­ing an over­val­ued lo­cal cur­rency. This is on top of money pledged for Belt and Road projects.

Most of the Chi­nese money loaned so far has been through pri­vate power projects and not to the gov­ern­ment, but Is­lam­abad has given sovereign guar­an­tees for the projects’ an­nual prof­its. Crit­ics have raised con­cern about opaque na­ture of some of the deals, say­ing they have left Pak­istan with li­a­bil­i­ties that could sad­dle it with de facto off-books debt. Azhar said Chi­nese projects should pro­ceed as planned as the gov­ern­ment views the in­fra­struc­ture was vi­tal to stim­u­lat­ing growth.

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