Pakistan asks China to give more loans for boosting foreign exchange reserves: Report

LAHORE: As foreign exchange reserves squeeze, Pakistan has reached out to China asking for more loans to avoid a foreign currency crisis.

According to a report in the Financial Times, Pakistan cautioned China if the loans dry up Beijing’s $60 billion investment in China-Pakistan Economic Corridor could be under threat.

In the first ten months of FY18, China lent Pakistan $1.5 billion in bilateral loans and it also received $2.9 billion in commercial bank loans mostly from Chinese banks.

Pakistani officials have told their Chinese counterparts in case the country seeks a bailout from the IMF, details of CPEC and how it is being funded will have to be shared with them and force it to cancel some of the infrastructure projects already planned.

In a statement to FT, one government official said We had a detailed discussion with the Chinese and we shared our concern. The main issue is that once we are locked in an IMF programme, we will have to make full disclosure of the terms on which China has agreed to build the CPEC.”

The country’s foreign exchange reserves have been sliding since the past two years, as remittances fall, and imports increased.

However, the fall has accelerated in the last few months partly due to rising oil prices which has increased prices of imported goods.

In 2019, the pressure would be further ratcheted up as Pakistan would need to make $12.7 billion of external repayments against $7.7 billion this year.

Last week, Reuters reported China had loaned Pakistan $1 billion due to plummeting foreign exchange reserves as pressure to seek a bailout from the IMF grows.

This indicates Pakistan’s growing dependence on Chinese loans to buffer its foreign currency reserves, which plunged to $9.66 billion last week from $16.4 billion in May 2017.

Fitch issued a warning last week saying declining forex reserves and rising current account deficit was adding to Pakistan’s burgeoning external financing risks.

It added, “With the upcoming general elections at the end of July, the government has a limited time to address the country’s debt obligations which are bound to accelerate in 2019, hence, requiring concentrated policy efforts and swift implementation starting this fiscal year.”