Pakistan has asked China to keep lending it money to prevent a foreign currency crisis, warning that Beijing’s planned $60bn investment in the South Asian country was at risk if it failed to do so, according to a report in the Financial Times.
China recently lent Pakistan $1 billion to help with its foreign currency crisis.
Over the last financial year ended June 2018, Pakistan borrowed $4bn from China according to government officials and wants to keep the money flowing to avoid having to ask the IMF for a bailout.
Officials in Islamabad have warned their Chinese counterparts that if the lending stops, it could threaten the future of the China-Pakistan Economic Corridor, the cornerstone of President Xi Jinping’s Belt and Road Initiative.
They say that if Pakistan is forced to approach the IMF instead, it may have to disclose details of how the scheme is being funded, and even 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.
Once the IMF looks at CPEC, they are certain to ask if Pakistan can afford such a large expenditure given our present economic outlook.
Pakistan’s stocks of foreign reserves have been falling for the past two years, as imports rise and remittances from abroad have fallen. But the slide has gathered pace in recent few months, due in part to higher oil prices pushing up the price of imported goods.
By the beginning of June, the State Bank of Pakistan had just $10 bn worth of foreign currency, down from $16.1 bn a year earlier and it’s not even enough to cover two months’ worth of imports.
The situation is set to become worse in 2019, when $12.7bn of external repayments are due, compared with $7.7bn this year.
Fitch issued a warning last week saying declining forex reserves and rising current account deficit were adding to Pakistan’s burgeoning external financing risks.