PK Balachandran, bdnews24.com :
Pakistani Prime Minister Imran Khan, under pressure from various quarters to accept or reject the idea of going for an IMF bailout to save the country from a grave financial crisis, is yet to make up his mind on the matter.
With discussions with the IMF due on Nov 7, Imran told heads of media organizations on Wednesday, that Pakistan may not go for an IMF bailout after all. It could choose to solve its financial problems through prudent management instead, he said.
On the one hand, the US-led IMF is set to impose its stringent traditional conditions with an additional clause that Islamabad should review, rework and reschedule its burgeoning debt to China.
On the other hand, China has said that, while it is not against a “professional assessment” of Pakistan’s finances by the IMF, it will certainly insist that the IMF’s recommendations do not adversely affect the on-going economic cooperation projects in Pakistan, principally the multi-billion dollar China-Pakistan Economic Corridor (CPEC), which is allegedly the principal cause of Pakistan’s financial woes.
US PRESSURE ON PAKISTAN
US Secretary of State Mike Pompeo’s has said that the IMF bailout package to Pakistan should not be used by the latter to pay off its debt to China. This was echoed by the State Department Spokesperson Heather Nauert.
And writing in the website of the Centre for Strategic and International Studies, Mark Sobel, a former representative of the US in the IMF said: “While the China-Pakistan Economic Corridor (CPEC) holds forth the prospect of boosting the Pakistani economy, especially if investments are sound, the terms and conditions of much of the lending are opaque, and interest rates on some loans may be higher than Pakistan can afford. The IMF must ensure that its resources are not used to bail out unsustainable Chinese lending for CPEC.”
“The Fund (IMF) needs to have at its fingertips comprehensive data on all CPEC lending – its terms, maturities and parties involved. Chinese lending should be on realistic terms and consistent with Pakistan’s sustainability. Otherwise, China should reschedule or write down its loans, sharply reducing the value of its claims,” Sobel wrote.
It remains to be seen how the Imran regime is going to manage to bring about an equilibrium between these two contesting claims at its meetings with the IMF on November 7 when it is expect to seek a bailout of $6.2 billion.
DOMESTIC CHALLENGE
In the domestic sphere too the regime is set to face a challenge. The IMF will, in all likelihood, insist that the government gets the support of the opposition parties to any package that may be agreed upon, as it had done earlier.
But given the sharply antagonistic relations between the ruling Pakistan Tehreek-e-Insaf (PTI) party and the opposition Pakistan Muslim League (Nawaz) and the Pakistan Peoples’ Party (PPP), Imran Khan will have to marshal all his persuasive skills to sell a package ,which will necessarily be harsh.
The task has become tougher now, given the victories registered by the opposition in the just concluded by-elections to 35 National and Provincial assembly seats.
The PTI had a major upset, as voters in two constituencies, earlier won by Imran Khan, namely NA-131 Lahore and NA-35 Bannu, changed their mind and elected members of the opposition parties.
EXTENT OF EXTERNAL DEBT
The IMF has said that Pakistan’s external debt and liabilities now stand at $93 billion. And if the present trend continues, it could mount to $144 billion in the next five years.
The IMF has also estimated that the country’s foreign currency reserves would continue to decline to $7.075 billion by 2023 from $12.09 billion held by the State Bank of Pakistan now.
More alarmingly, the total external debt servicing would reach $19.7 billion by 2023 against $7.739 billion in the financial year 2018.
DEBT TO CHINA
Writing in Express Tribune, Salman Siddiqui has quoted Topline Securities to say that Pakistan will end up paying $90 billion to China over a span of 30 years against the loan and investment portfolio worth $50 billion under CPEC.
“The estimated return on Chinese investments (which is the sum of principal and interest on foreign currency debt and repayment of profits/dividend on equity investment) shows 40% return on investment,” the Topline Securities’ report on CPEC says.
“The amount increased to $54 billion after the inclusion of more projects in CPEC such as investments in Pakistan Railways and financing of the Karachi Circular Railways project. The volume of return would increase accordingly.”
“Infrastructure and power projects – part of the CPEC portfolio and divided across time in terms of priority – are expected to be completed by fiscal year 2030.”
Leading economists have estimated an annual average repayment of $3 to 4 billion per year to China post fiscal year 2020.
Also most CPEC-related projects are being funded abroad and Pakistan is not seeing any significant inflow of foreign exchange.
“It should be noted that project financing for CPEC is being done between Chinese companies and banks and around 25% of CPEC investment is expected to come in Pakistan,” the Topline Securities report said.
However, the report argued that repayment would be manageable given the projected surge in exports and drop in imports. CPEC has also put money in peoples’ pockets by generating 70,000 jobs so far.
CHINA MIGHT HELP OUT PAKISTAN
Pakistan’s heavy reliance on China to meet its developmental and strategic needs makes it hard for it to ask Beijing to reschedule or rework its debt repayments.
But eventually, as an “all weather friend”, China might oblige, though only if CPEC is not badly dented. Just as Pakistan cannot do without China, China cannot do without Pakistan. China has a huge financial commitment in CPEC and has a very significant strategic interest in it.
DIFFERENCES IN PERCEPTION
The first hurdle to be overcome in the Pakistan-IMF talks is the difference in perception about the nature of Chinese loans. Pakistan’s Finance Minister Asad Umar told the media after his talks with IMF’s Christine Lagarde in Indonesia, that the State Department’ contentions about Chinese loans are “100% wrong.” “Pakistan’s financing gap for the current year is about $12 billion and total repayments to China averages $300 million over the next three years,” Umar said.
“The terms of Chinese loans would be placed before parliament and shared with the IMF. We should show how China, a real friend, extended attractive financing to Pakistan for the long term. The Chinese embassy has endorsed this position in a recent tweet,” Umar added.
