China to extend support through short term loans

Despite record loans obtained by the PML-N led government, Pakistan has no other option but to approach IMF for another bailout, says expert.

ISLAMABAD: It was earlier rumoured that the caretaker government would opt for a bailout from the International Monetary Fund (IMF), however, after the caretaker setup denied such plans, Pakistan is likely to rely on short-term loans from China till the next government takes charge.

According to sources, China has reassured the caretaker government of financial support in terms of short-term loans till after the general elections later, scheduled for July 25. “Since Chinese banks have assured the government to continue extending the short-term arrangements, the caretaker government has decided to avoid talks with IMF for another bailout package leaving the matter to be decided by the new government,” said a source in the Ministry of Finance.

The federal government, which has already obtained over $4 billion in shape of both bilateral as well as commercial loans from Chinese banks during the first 10 months (July-April) of FY18-19, will continue to receive financial support till August 2018. The financial support from China, in case the disbursement of short-term loan continues, is likely to cross $6 billion during the outgoing financial year 2018-19. Pakistan for the last two years has been dependant on expensive short-term loans to shore up dwindling foreign currency reserves.

Moreover, Pakistan has become a desperate borrower in recent months as the government obtained $1.4 billion from China alone in April 2018, including $228 million as bilateral loan and another $1.2 billion from Chinese commercial banks.

Article continues after this advertisement

According to experts as other multilateral and bilateral creditors have slowed down the disbursements of loans to Pakistan, the government has been left with no other option but to approach IMF or China for a bailout. Moreover, to make matters worse the fast devaluation of currency predicts economic vulnerability. From December to March, the rupee was devalued, each time by about 5 per cent, by the State Bank of Pakistan (SBP).

Furthermore, the Current Account deficit has widened to $14 billion, around 5.3 per cent of gross domestic product (GDP). The economic outlook has been hurt by the fast depletion of foreign currency reserves, which now stand at just over $10 billion. Keeping the worrisome outlook of the economy the government here is reportedly in talks with China for loans to ease pressure on its foreign currency reserves.

According to experts, the Chinese assistance is a temporary bridge until August or September when the newly elected government will take charge. However, even then Pakistan is highly likely to approach IMF for a new programme, which may come with harsh terms for the country.

Regardless the record short-term loans received by the previous PML-N led government, which completed its term on May 31, Pakistan ultimately needs to opt for major bailout programme to honour the repayment of loans which would mature in the next couple of months. Experts believe that Pakistan will not be able to manage its yawning current account deficit in the wake of rising imports and inability to boost exports, which continue to endanger the foreign currency reserves.

As per available data, Pakistan has obtained over $9 billion in loans during the first 10 months of the FY2018 against the assessed $8 billion loan for the whole fiscal year. The official data shows that all bilateral and multilateral creditors have also slowed down their disbursements in the current fiscal year when compared to China and different Chinese banks.

- Advertisement -
Ghulam Abbas
The writer is a member of the staff at the Islamabad Bureau. He can be reached at [email protected]
- Advertisement -

Must Read

HBL partners with PAFLA to enable Pakistan’s freelance industry

HBL has entered into a strategic alliance with Pakistan Freelancers Association (PAFLA), a non-profit organization founded to empower Pakistani freelancers. The partnership will enable...