Pakistan's bailout from the IMF hinges on an examination of its Chinese debt

• Last week, the IMF’s managing director, Christine Lagarde, confirmed that a team would be sent to Pakistan to discuss the terms of a bailout next month.
  
• If approved, this would be Pakistan’s 13th loan programme from the IMF. The last time Pakistan secured a loan package from the IMF was in 2013, when it received $6.7 billion.
  
• However, in order for it to be approved, the IMF and the US will need to examine all the country’s debt obligations under the China-Pakistan Economic Partnership (CPEC).
  

Last week, following weeks of speculation, it came to light that Pakistan was seeking to negotiate an emergency bailout package with the International Monetary Fund (IMF) - its 13th such loan programme to date. The fund’s managing director, Christine Lagarde, confirmed on 11 October that an IMF team would be sent to Pakistan to discuss the terms of the bailout in the coming weeks.

The last time Pakistan secured a loan package from the IMF was in 2013, when it received $6.7 billion. This time around, the funding amount will be higher.

The country’s new Prime Minister, Imran Khan, has suggested that the bailout could be to the tune of around $12 billion - the amount of Pakistan’s external financing shortfall - while the International Institute of Finance, a Washington, DC-based trade association, pegged the potential size of a three-year package at $15 billion.


Pakistan’s debt burden is sizeable. According to the State Bank of Pakistan, the country’s total debt was PKR28.4 trillion ($215 billion) - a staggering 83% of GDP as of June 2018. Exacerbating the situation are Pakistan’s dwindling foreign reserves, which are a paltry $8.3 billion.


The US has cautioned against the IMF bailout, saying that it should not be used to refinance Chinese projects or for Pakistan to pay back its loans to China. Infact, a spokesperson for the US State Department, Heather Nauert, pinned the blame for Pakistan’s dire financial situation on its relationship with China.

An assessment of Pakistan’s CPEC debts

The bailout is expected to come with stricter conditions and will depend on an IMF assessment of Pakistan’s debts to China. This will require a complete and transparent disclosure of all of Pakistan’s debts related to the $60 billion China-Pakistan Economic Partnership (CPEC). It is important for the US, which has around 17% of the voting rights at the IMF, to sign off on the programme for it to be approved.

The bailout will likely require the imposition of hard austerity measures such as the welfare spending cuts, another currency devaluation and higher taxes. Pakistan has routinely failed previous IMF conditions for loans such as privatisation and deregulation, having successfully completed only the most recent programme.

For its part, the Pakistan government has agreed to share all details of its debt transactions with China with the IMF team, as per a statement from the country’s finance minister Asad Umar. While Pakistan’s maturing debt obligations for the year amount to $9 billion, Umar said that the IMF loan package would not be used to pay all of them down. Umar also rejected Nauert’s assertion that the CPEC was to blame for Pakistan’s debt crisis.