IMF team in Pakistan as China pledges aid
Islamabad gets confidence boost but bailout still on the cards
ISLAMABAD: An International Monetary Fund team arrived in Islamabad yesterday for talks on a possible IMF bailout, even as Pakistan insisted it had solved its immediate balance of payments crisis.
Speaking shortly after Prime Minister Imran Khan returned from Beijing, Pakistan’s finance minister said Tuesday that assurances from China-combined with a pledge made by Saudi Arabia last month-meant that Pakistan’s immediate fiscal woes were “over”.
“We had a gap of $12 billion and in that $12 billion, six billion came from Saudi Arabia and the rest came from China,” Asad Umar told reporters, without specifying the nature of the Chinese assistance.
The finance secretary and the governor of the state bank will attend a meeting in Beijing tomorrow to finalize the terms of the assistance, he added. Pakistan secured $6 billion in funding from Saudi Arabia and struck a 12-month deal for a balance of payments lifeline during Khan’s visit in October.
Despite the pledges, the ministry of finance said the Pakistan would still seek broader IMF support for the government’s long term economic planning. Since taking power in August, former cricketer Khan has been searching for ways to rally a struggling economy hit by inflation and shore up the country’s dwindling foreign currency reserves.
As well as a highly-publicized austerity drive, including auctioning off government-owned luxury automobiles and buffaloes, the new prime minister has also made overtures to the IMF-which has bailed Pakistan out repeatedly since the 1980s.
However, Islamabad received billions of dollars in Chinese loans to finance ambitious infrastructure projects, and the US-one of the IMF’s biggest donors-has raised fears that Pakistan could use any bailout money to repay its debts to Beijing. Islamabad-which last received an IMF bailout in 2013 to the tune of $6.6 billion-has refuted these claims.
The Pakistani finance minister’s bullish comments declaring the end of an economic crisis have bolstered confidence ahead of crunch talks with the International Monetary Fund yesterday, but the country is still likely to need a bailout.
Finance Minister Asad Umar said on Tuesday that “Pakistan’s immediate balance of payment crisis is over” without mentioning the talks with the IMF in Islamabad.
Umar’s comments came after Prime Minister Imran Khan visited main allies Saudi Arabia and China last month. Khan secured $6 billion in assistance from Riyadh while Beijing promised help cover a projected $12 billion shortfall in foreign exchange to service Pakistan’s debt.
Pakistan’s central bank chief is due to travel to China tomorrow to discuss details of what Umar described as a pledge of “immediate money”. Analysts say the cash will give the economy breathing space and stabilize the rupee, which has fallen 25 percent against the US dollar since December, but it will not solve Pakistan’s balance of payments crisis and avert a second IMF bailout request since 2013, and its 13th IMF rescue since late the 1980s.
“They are going to the IMF because they have to get credit rating approval from the financial markets and that would not happen on the Saudi or Chinese money,” Asad Sayeed, an economist at the Collective for Social Science Research, told Reuters. Pakistani officials are concerned tough IMF conditions would hit growth in the short term, as the IMF is likely to push for reduced spending, further currency devaluations and an increase in interest rates, preventing Khan from fulfilling populist campaign pledges. Khan’s government has pledged to create an “Islamic welfare state” and help build 5 million homes for the poor in a nation where the illiteracy rate is more than 40 percent.
Confidence boost
But the Saudi and Chinese help could put the government in a stronger position to negotiate better terms with the IMF, Saad Hashemy, chief economist for local brokerage Topline Securities, told Reuters. “The statement by the finance minister is a big confidence booster for the economy,” Hashemy said.
“What it falls short of is the exact details of the funding from the Chinese side,” he added, speculating China may opt to defer payments on existing loans and buy more Pakistani imports. Chinese foreign ministry spokeswoman Hua Chunying told a daily news briefing Beijing was “willing, in accordance with Pakistan’s needs and with agreement by both sides, to provide what help we can for Pakistan’s economic and social development”. —Agencies