As the incoming government under the leadership of Imran Khan prepares to take the reins of a country embroiled in a balance of payments crisis and depleting foreign reserves, according to senior officials, Pakistan has been guaranteed financial backing from Beijing, and just might be able to avoid going to the International Monetary Fund (IMF) for a bailout.
Senior members from the Pakistan Tehreek-e-Insaf (PTI) party have been assured that they will get more loans from close partner and ally – China, in the upcoming months, reported the Financial Times.
Islamabad has become increasingly dependent on external financing from China’s state-backed banks in the last financial year, having secured loans worth more than $5 billion.
One prospective cabinet minister said that “China has promised to continue helping Pakistan overcome the crunch on foreign payments.”
Another senior party leader said: “The Chinese have signalled their intent to keep helping Pakistan avoid a crisis, a default.” But he added that Chinese officials have urged their Pakistani counterparts “to take steps to reduce the large deficit”.
Imran Khan is hoping to be sworn as the country’s new prime minister within days following last month’s election, at which his party won the most seats. New MPs took their oaths on Monday, with the opposition Pakistan Muslim League-Nawaz and Pakistan People’s party promising to provide a unified opposition to PTI.
One of Khan’s first tasks will be to repair the country’s balance of payments problem, with high imports and low exports having left it with only $10.4 billion in foreign currency, according to the latest published statistics — enough to cover two months’ worth of imports.
Officials have drawn up plans for the new government to approach the IMF for a bailout worth up to $12 billion, which would be Pakistan’s 13th bailout from the fund and its largest ever.
But the US, which is the IMF’s biggest shareholder, has urged the fund not to issue a loan unless Pakistan publishes full details of the loans it has taken from China to pay for a $60 billion infrastructure scheme under the China-Pakistan Economic Corridor (CPEC).
With Islamabad and Beijing reluctant to reveal loan details, officials in the Pakistani government have begun to explore other sources of funding.
Last week, Saudi-backed Islamic Development Bank (IDB) agreed in principle to lend Pakistan more than $4 billion — though this will be insufficient to avoid further assistance.
Asad Umar, the man most likely to be the next finance minister of Pakistan, revealed earlier that during the first 100 days of the new government, all state-owned companies would be transferred into a special wealth fund.
According to him, the country would have to consider a mass privatisation drive as it seeks to obtain the necessary funds to pull the nation out of the economic crises that the nation seems to be lingering around. The creation of this fund may help persuade the IMF to agree to a favourable deal for the country.
The likely new finance minister went on to say that the creation of this special wealth fund would be the first step towards privatization by the new government.
On Monday. Asad Umar said that that he saw turning to the IMF as a “fallback option”, to be sought once other routes had been explored.
Beijing has not told Islamabad how much it might be willing to lend, or whether it will be enough to avoid an IMF bailout. But Umar told reporters last week the Chinese ambassador to Pakistan had given the incoming government “his assurance that China is a friend that Pakistan can count on”.