The economy will be Imran’s big challenge

China can help Pakistan, but the future PM will be wary of notching up more debt

The toughest task that Imran Khan will have to grapple with as Pakistan’s new prime minister is not the security situation; it is seeking another bailout from the International Monetary Fund (IMF) to plug an external financing gap. Some reports have suggested that Pakistani officials are finalising a plan to seek a $12 billion package from the IMF, while others have suggested that the Pakistan Tehreek-e-Insaf chief could turn to China for financial assistance in view of the worsening ties between Islamabad and Washington. The Trump administration, which has ensured that security aid for Pakistan has come down from the historic levels of more than $1 billion a year to a few hundred million dollars, has made it clear that any IMF bailout can’t be used to pay back Chinese loans. Secretary of state Mike Pompeo said the US will be watching “what the IMF does”.

Pakistan’s economy has struggled in the past decade, largely due to a mix of poor security conditions and poor governance. If it showed signs of picking up in the last few years, it was largely because of Chinese investments in the $60 billion China-Pakistan Economic Corridor (CPEC), part of the One Belt, One Road initiative. Pakistan’s current account deficit has already risen because of massive imports of Chinese equipment and materials for CPEC and the country has already taken loans worth almost $5 billion from China and its banks.

While it may be tempting for Pakistan to turn to China, even an inexperienced administrator such as Mr Khan will be aware of the debt traps that have arisen in countries which aligned themselves too closely with China’s Belt and Road Initiative. Any IMF bailout will come with stringent conditions. Mr Khan will also be aware of the need for tax reforms, with only about 1% of Pakistan’s population of nearly 200 million paying taxes, and the need to rein in external debt that has soared to 31% of GDP. Mr Khan has his work cut out on the economic front.