China has increased its economic sway in Pakistan during the past year, providing more than $1bn in loans to help its neighbour stave off a currency crisis.
State-backed Chinese banks have twice come to the rescue of the nuclear-armed state, officials have told the Financial Times, with $900m in 2016 and $300m in the first three months of this year. The loans demonstrate the perilous fragility of Pakistan’s stocks of foreign currency, depleted in recent months by rising imports and falls in exports and remittances from Pakistanis abroad.
China’s financial help also underlines an increasingly close relationship at a time of strains between Pakistan and the US. Beijing is preparing to invest at least $52bn in Pakistan to build a highway, energy pipelines, power-generation facilities and industrial parks from the western port of Gwadar on the Gulf to the Chinese border to the north.
But despite its expected benefits, the China-Pakistan Economic Corridor infrastructure project is set to further deplete the foreign currency stocks, needed to pay contractors and suppliers. Figures from the State Bank of Pakistan show the country had $17.1bn of net reserves at the end of February, down from $18.9bn at the end of October and a peak of $25bn several years ago. This has forced the country to seek emergency loans from outside sources to repay older loans made in foreign currencies.
The Exchange Judgment leaves Nawaz Sharif free to prepare for elections Public anger at corruption is just one of the issues Pakistan’s PM has to face Of the $1.2bn from the Chinese institutions, $600m came from the government-run China Development Bank and $600m from the state-owned Industrial and Commercial Bank of China, the only mainland bank with a branch in Pakistan.
Policy banks such as CDB often act on behalf of the central bank. One Pakistani official said: “China keeps a very close eye on our economic trends and they’re happy to come to our help wherever needed.” But experts warn that Pakistan is likely to have to return to institutions such as the International Monetary Fund, to which it sought recourse in 2013, for further support. Vaqar Ahmed, deputy executive director of the Sustainable Development Policy Institute in Islamabad, said: “Technically speaking we should have gone back to the IMF in January, but ministers are likely to try and wait until after the election [for parliament planned for 2018].” One member of the ruling Pakistan Muslim League-Nawaz told the Financial Times ministers were loath to turn to the IMF until after the election in an effort to limit the political fallout. “The IMF is a politically volatile issue in our country. If we go to the IMF to deal with our needs, that will send a very negative political signal and the opposition [parties] will use that against the government,” the person said.
It was only last year that Pakistan cleared the IMF debt incurred in 2013, a repayment that led policymakers in Islamabad and abroad to express optimism about prospects for economic stability. Christine Lagarde, the head of the IMF, called it a “moment of opportunity” for the country.
Courtesy Financial Times
