ISLAMABAD – Pakistan expects to obtain fresh Chinese loans worth $1-2billion to help it avert a balance of payments crisis, Pakistani governmentsources said, in another sign of Islamabad’s growing reliance on Beijingfor financial support.
Lending to Pakistan by China and its banks is on track to hit $5 billion inthe fiscal year ending in June, according to recent disclosures byofficials and Pakistan finance ministry data reviewed by Reuters.
The ramp up in China’s lending comes as the United States is cutting aid toPakistan following a fracture in relations between the on-off allies. InFebruary, Washington led efforts that saw Pakistan placed on a globalterror financing watchlist, drawing anger in Islamabad amid fears it willhurt the economy.The new Chinese loans that are being negotiated will helpbolster Pakistan’s rapidly-depleting foreign currency reserves, whichtumbled to $10.3 billion last week from $16.4 billion in May 2017. Thetalks come only weeks after a group of Chinese commercial banks lent $1billion to Pakistan’s government in April.
The reserves decline and a sharp widening of Pakistan’s current accountdeficit have prompted many financial analysts to predict that after thegeneral election, likely in July, Islamabad will need its secondInternational Monetary Fund (IMF) bailout since 2013. The last IMFassistance package was worth $6.7 billion.
Beijing’s attempts to prop up Pakistan’s economy follow a deepening inpolitical and military ties in the wake of China’s pledge to fundbadly-needed power and road infrastructure as part of the $57 billionChina-Pakistan Economic Corridor (CPEC), a key cog in Beijing’s vast Beltand Road initiative. “I think this month we will get that $1-2 billion,”said a senior Pakistan government official, saying the funds will come fromChinese state-run institutions.
A second government official confirmed Pakistan was in “sensitive” talkswith Beijing over extra funding for up to $2 billion. Pakistan financeministry officials did not respond to a request for comment.China’s financeministry and central bank, who were faxed questions about the loans, didnot immediately respond to requests for comment.
Although Pakistan’s economic growth has soared to nearly 6 percent, thefastest pace in 13 years, the structural problems with the economy arecoming to the fore. It is similar to 2013, when foreign currency reservesdwindled and Pakistan narrowly escaped a full-blown currency crisis.