BEIJING – Pakistan needs a bailout. Perhaps, someone is already bailing thecountry out quietly and consistently. Had China not lent $4-5 billion inFY17; Pakistan would have already been in another IMF programme. And themoney has not stopped flowing in FY18, as the toll is likely to be around$5 billion.

The Chinese debt is well on top in Pakistan’s total external debt andliabilities. The government got $1 billion in April18 and another $2billion is expected soon. The toll will easily cross $20 billion out of $91billion total external debt.

Can Chinese debt be compared to IMF loans? Can these flows be substitute toan IMF programme? It may be too early to comment that Pakistan is lookingat China for bailout and will not enter an IMF programmlink>e in afew months time.

One thing is for certain that the country needs $8-10 billion in FY19 tonot let reserves falllink> furtherfrom existing eight weeks of import cover. Hence, external help isinevitable. Will it be China alone or a combination of China and the IMF?

The external snapsholink>tis simple; the current account deficit is $1.25-1.5 billion a month, out ofwhich $0.2-.0.3 billion are coming from FDI; taking the net financingrequirement at $1-1.2 billion per month. 4QFY18 is tough as $3.2 billionprincipal debt repayment is due which makes gross funding requirement at$6.2-6.8 billion.

That is why the SBP reserves fell by $1.3 billion in the last six weeksdespite $1 billion loan from China. This makes a sum of $2.3 billion whichimplies another $4 billion will either be raised by June end in the form ofdebt or there will be further drop in reserves.

Can the country afford another drop of $2 billion reserves till June end?If that happens, the import cover will be slashed to mere six weeks. Thatis too dangerous a situation to be in. The new government will be in powerin August. Will the Chinese loan continue or the new government be dealingwith the IMF in its first 100 days?

Nobody knows on what conditions are the Chinese loans, unlike the IMF whichcomes with full disclosure of loan amount, tranches details andconditionalities to be implemented by the government. The Chinese operatesubtly; and that is true for other countries as well where Chinese lend andinvest.

If China keeps on bailing out; on average, it will be pouring in $1 billiona month while the gross funding requirement would be around $1.5 billionper month in FY19 (as average monthly principal debt repayment is around$0.35 billion). The other bilateral and multilaterals will keep on givingaround $0.5 billion per month.

Without any structural reforms, the cycle will continue in FY20 and so andso forth. But can the Chinese loan continue forever without any conditions?There are no free lunches. Everyone knows how the IMF operates. It is a nobrainier to conclude that past IMF programmes never led to sustainablegrowth. The IMF ensures its repayment by bringing austerity which slowsdown the growth momentum. The conditions of structural reforms are almostalways remained un-met.

The Chinese style is different. They want Pakistan to keep on growing tofit in its OBOR model by making CPEC successful. Pakistan wants a debtfueled growth momentum to continue for a few years for engaging youth andlowering poverty.

At the end; the debt will be paid back either by generating exportablesurplus or selling the country’s assets. Without structural reforms andresolving governance matters, the eventuality is IMF – be it in a quarteryear or five.