ISLAMABAD – Pakistan has once again turned to China for help in avoiding aforeign currency crisis by borrowing $1 billion from Chinese banks in Aprilon “good, competitive rates”, the *Financial Times* (FT) reported onWednesday link>.
In an interview with the publication, State Bank of Pakistan (SBP) GovernorTariq Bajwa confirmed the loans were made by Beijing-backed banks on goodrates.
“The money strengthens the financial, political and military ties betweenthe two countries,” read the *FT* article.
“Chinese commercial banks are awash with liquidity,” Bajwa was quoted assaying.
Pakistan’s foreign exchange reserves have dropped from $18.1bn in Aprillast year to $10.8bn in May this year.
According to the article, Pakistani officials also hope that borrowing fromChinese banks will also save Pakistan a trip to the Internation MonetaryFund (IMF).
Since December 1988, Pakistan has had nine separate engagements with theIMF — three of them were double programmes. That means there have been 12IMF programmes in Pakistan in the last 28 years. Only four of them – allinitiated in the 2000s and 2010s – were completed successfully; all therest were abandoned halfway in the 1990s.
Lending money to Pakistan also favours China, said *FT* quoting Pakistaniofficials, as it does not wish to disclose details of the loans that arepart of the CPEC project. China is investing almost $60bn on buildinginfrastructure in Pakistan, however, it is reluctant to reveal the sum itis lending to Islamabad as part of the CPEC project.
“The Chinese are not keen on western institutions learning the minutedetails of [financing of] CPEC projects,” an unnamed official in Islamabadwas quoted as saying. “An IMF programme will require Pakistan to disclosethe financial terms to its officials.”
According to the *FT* report, prior to last month’s loan of $1bn, Pakistanhad borrowed almost $1.2bn from Chinese banks since April, 2017 and moreloans might follow. Another anonymous official quoted by the publicationclaimed that Pakistan’s finance ministry has held “informal discussions”with the Chinese to lend at least an additional $500mn before the end ofthe financial year April, 2019.
“Borrowing from China has become an increasing feature of our externalside,” the official said.
The article also touches upon the skepticism around the Chinese loans.Mushtaq Khan, a former SBP economist, while speaking to *FT* said:“Pakistan’s policymakers are not doing enough to narrow the externaldeficit — instead, they’re just financing the gap.”
“China factors importantly into this financing, but that doesn’t reallysolve our problem — it only postpones and exacerbates the issue,” he added.
Pakistan secured a $1 billion commercial loan from a Chinese bank a dayafter the announcement of the federal budget 2018-19 on April 27 which isrepayable in three years. This improved the country’s total foreignexchange reserves to $17.7bn, jacking up official reserves held by theState Bank of Pakistan by 5.5 per cent to $11.5bn.