Pakistan puts focus on China’s loans

Imran Khan, Pakistan’s former cricket captain and newly elected prime minister, is on a sticky wicket. His victory in last week’s polls was secured in part on a pledge to ramp up spending on public services. Yet the coffers are empty and a balance of payments crisis looms. Instead of the “Islamic welfare state” he hoped to create, his aides are forced to ponder the prospect of an IMF deal.

Even that safety net may not be at hand. Mike Pompeo, US secretary of state, says Washington will oppose any bail-out that pays off Chinese loans as this would be unfair to US taxpayers. For years, a dispute between China and the West has been simmering over the terms of development financing. Pakistan is where it threatens to boil over. Exports are down and foreign exchange reserves cover just two months of imports.

China has played its part in this emerging crisis, lavishing tens of billions of dollars in opaque project financing under President Xi Jinping’s signature Belt and Road initiative. Pakistan is already ill-equipped to pay these back. The China Development Bank and China’s Exim Bank now have a larger loan portfolio than the World Bank and five regional development banks together.

The spotlight the Pakistan crisis puts on Beijing’s opaque lending to emerging markets should provide an opportunity for the West to make the case that China’s reputation on development lending is also on the line. London, August 1