Driving commercial and political engagement between Asia, the Middle East and Europe
Driving commercial and political engagement between Asia, the Middle East and Europe
Driving commercial and political engagement between Asia, the Middle East and Europe
China has lent Pakistan US$2 billion just days after the election of new Prime Minister Imran Khan, reflecting Beijing’s aim to maintain close ties with the South Asian country.
Pakistan is facing an economic crisis, with foreign exchange reserves falling to their lowest levels in over three years, enough to cover just two months of imports, The Financial Times reports. Amid speculation of another International Monetary Fund (IMF) bail out, the Chinese loan will help Pakistan shore up its reserves.
As reported by The Straits Times, this gesture by Beijing speaks to Pakistan’s overwhelming reliance on China as a source of financial, diplomatic and military support at a time when the Trump Administration has cut US military aid to Islamabad. It also highlight’s how important China considers Pakistan – a key conduit for parts of the Belt and Road Initiative.
Chinese loans to Pakistan for the fiscal year ending in June already reached US$5 billion, and the vast debts to China have prompted US Secretary of State Mike Pompeo to tell CNBC that he would be watching to see if Khan’s new government uses IMF funds to pay off Chinese loans.
Even with China’s short-term lending, analysts believe that a move to seek an IMF bailout is inevitable for Khan. This would include restrictions on borrowing and spending, which could force Pakistan to curtail the China-Pakistan Economic Corridor project (CPEC).
According to The Wall Street Journal, this would be a big embarrassment for China, with the CPEC seen as the Belt and Road Initiative’s flagship project. Pakistan has however dismissed US concerns, with it’s finance ministry stating that it is “totally wrong to link the IMF package with CPEC”, as reported by Reuters.
Khan now faces the tough decision of whether to seek the IMF bailout, which would limit his ability to implement his election promise of building an “Islamic welfare state”. The other option, as identified by The Financial Times, is to negotiate a deal with Saudi Arabia to defer oil payments, as was done in 1998.
