Pakistan has declined an IMF bailout after securing help from China and Arab countries
- Pakistan’s finance minister, Asad Umar, has said that the country is no longer seeking a bailout from the
International Monetary Fund. Pakistansecured funds from a number of allies in recent months like Saudi Arabia, UAE and most importantly, China.
- In order to close a loan from the IMF, the government would have had to disclose all the details of its debts to China.
Pakistan stood to receive $8 billion of funding under the programme, which would have been the country’s 13th such arrangement with the IMF to date. Umar added that the government, which is led by Prime Minister
When Khan took over the prime ministership in August last year, Pakistan was in dire need of an IMF bailout to end its public
However, the South Asian country got help from other quarters. In October 2018, Saudi Arabia extended $6 billion worth of financial support to Pakistan in the form of forex support and deferred oil payments. An additional loan from China helped plug the rest of Pakistan’s financing shortfall. Finally, last week, the
The concessions that Imran Khan administration has managed to secure from Pakistan’s allies in recent months has improved the country’s bargaining power while negotiating with the IMF and ultimately, spurred them to walk away when talks became contentious.
The IMF bailout -- the talks began in November 2018 -- would have had a high cost. The IMF would have demanded welfare spending cuts, persistent interest rate hikes, higher gas and electricity tariffs, rise in taxes and even the free-float of the currency, which would have been tantamount to a devaluation. Most of these would have resulted in the government losing favour with businesses and citizens alike.
In fact, a Pakistani government official told Dawn, a newspaper, at the end of December that the adjustment being demanded by the IMF was “too large” and that their implementation was required before the disbursal of funds. The expenditure cuts would have also reportedly required a reduction in military spending and even salaries of generals.
Tensions with the US and IMF
The IMF talks came against the backdrop of rising tensions between the Pakistan and US, which has suspended around $1.3 billion in aid to the former last year over its supposed to inability to curb terrorism. Pakistan has also lost favour with the US owing to its ever-growing closeness with China.
The China-Pakistan Economic Corridor (CPEC), which comprises around $60 billion of infrastructure projects, is cited as a major reason for Pakistan’s debt problem. The primary model for Chinese financing is a upfront investment which functions as a long-term loan payable by Pakistan.
This reportedly proved to be a sticking point between the Pakistani government and the IMF as the bailout required a full disclosure of all of Pakistan’s debts to China under the CPEC.
Even officials in the US government weighed in. A spokesperson for the US State Department, Heather Nauert, pinned the blame for Pakistan’s dire financial situation on its relationship with China. The US government also cautioned that the IMF bailout should not be used to pay back Chinese loans. The talks were eventually extended after the parties failed to reach an agreement in November.
Ultimately, the discussions were too fraught for any consensus to emerge. And now, Pakistan’s options seem more limited than ever. An IMF package would have unlocked additional funding from multilateral institutions like the Asian Development Bank (ADB).
The burden of loans from China are piling up on Pakistan’s back and they will have repercussions for generations. In December, Fitch, a ratings agency, predicted that Pakistan’s debt to China would only rise further in the absence of private investment, lending credence to the claims of China’s “debt-trap diplomacy”.
Pakistan's bailout from the IMF hinges on an examination of its Chinese debt
Pakistan’s new government just took an important first step to reducing its debt obligation to China