Once again, Pakistan has sought China’s help in avoiding a foreign currency crisis by borrowing $1 billion from Chinese commercial banks in April.
In an interview with the Financial Times, State Bank of Pakistan (SBP) Governor Tariq Bajwa confirmed the loans were made by Beijing-backed banks on good rates.
The publication reported that the money received from China strengthens the financial, political and military ties between the two historically friendly countries.
Pakistan’s foreign exchange reserves have dropped from $18.1 billion in April last year to $10.8 billion in May this year. According to the publication, Pakistani officials also hope that borrowing from Chinese banks will also save Pakistan a trip to the Internation Monetary Fund (IMF).
Pakistan has had nine separate engagements with the IMF since December 1988. Three of them were double programmes. That means there have been 12 IMF programmes in Pakistan in the last 28 years. Only four of them which initiated in the 2000s and 2010s were completed successfully; all the rest were abandoned halfway in the 1990s.
Lending money to Pakistan also favours China, said FT quoting Pakistani officials, as it does not wish to disclose details of the loans that are part of the CPEC project. China is investing almost $60 billion on building infrastructure in Pakistan; however, it is reluctant to reveal the sum it is lending to Islamabad as part of the CPEC project.
“The Chinese are not keen on western institutions learning the minute details of CPEC projects,” an unnamed official in Islamabad was quoted as saying. “An IMF programme will require Pakistan to disclose the financial terms to its officials.”
According to the publication, prior to last month’s loan of $1 billion, Pakistan had borrowed almost $1.2 billion from Chinese banks since April, 2017 and more loans might follow. Another anonymous official quoted by the publication claimed that Pakistan’s finance ministry has held “informal discussions” with the Chinese to lend at least an additional $500 million before the end of the financial year April, 2019.
“The article also touches upon the skepticism around the Chinese loans. A former SBP economist Mushtaq Khan said, “Pakistan’s policymakers are not doing enough to narrow the external deficit, instead, they’re just financing the gap.”
Pakistan secured a $1 billion commercial loan from a Chinese bank a day after the announcement of the federal budget 2018-19 on April 27 which is repayable in three years. This improved the country’s total foreign exchange reserves to $17.7 billion, jacking up official reserves held by the State Bank of Pakistan by 5.5 per cent to $11.5 billion.
Questions have consistently been raised against Pakistan’s financial reliance on China within and outside the country with many divided over the repercussions of Pakistan’s recurring financial dependency.
